VEHICLE WRITE-OFFS MADE SIMPLE

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1 VEHICLE WRITE-OFFS MADE SIMPLE Working with the profession to simplify the language of insurance

2 DEALING WITH A WRITE-OFF OR TOTAL LOSS If you are involved in an accident and your car is damaged, provided you have comprehensive cover, your insurer will most commonly pay for the cost of any repairs. However, it will only do this where it is financially viable to do so. Insurers take the view it makes no sense for them to pay for repairs where these will cost more than the car is worth. If this is the case, a company will treat the vehicle as a total loss also known as a write-off and pay a cash sum which reflects its value before it was damaged. A stolen vehicle will also be declared a total loss if it is recovered in a condition where it is not economic to repair it. If your vehicle is stolen and not recovered, it cannot be declared a write-off. Your insurer will contact you to agree a valuation for your stolen vehicle and discuss the cost of a replacement.

3 How do insurers decide if my car is a total loss? Your insurer will treat your car as a total loss if it considers the costs of repair to be uneconomical. This is not only where the repair costs are more than the vehicle is worth. Insurers need to take into account other costs associated with the repairs, such as the cost of courtesy cars, which could mean that any repairs that exceed around 50% of the value of the vehicle are not considered to be worth carrying out. This repair to value ratio is used to decide if a damaged vehicle should be written-off. Insurers use different ratios and include different costs. Some insurers set it at 50%, others at 70%. Other costs, such as a courtesy car, engineer visits and airbag replacement may or may not be factored in. Ultimately, an insurer will not repair a car if it is unsafe or uneconomical to do so. Any repairs that exceed 50% of the vehicle value are not carried out

4 How much will my insurers pay? If your car is written-off within a specified time typically within 12 months after the date of first registration, you will probably be entitled to a new replacement vehicle. Check your policy document most insurers provide this cover. Brand new cars decrease in value the minute you drive off the dealers forecourt But after that period, motor policies rarely require the insurer to provide a new replacement. If your car is written-off, your insurer will pay a cash amount equal to the vehicle s value before it was damaged. Remember that this value is unlikely to be the same as the price you paid for your car or the value you estimated when arranging cover. The minute you drive your brand new car off the dealer s forecourt it will reduce in value significantly and all cars depreciate in value over time. Insurers will base any offer on a car s value immediately before an accident and not at the time you bought it. Don t be confused by the fact that you may have been asked for the vehicle s value when arranging cover. This information is only used by insurers to decide what cover to offer and what premium to charge or for other reasons such as to prevent fraud. It does not mean that this is what insurers will pay out for a total loss. Remember also that most insurance policies contain an excess the amount of any claim which you have to pay yourself. The insurer is entitled to deduct any excess from the market value when calculating what to pay for a total loss claim.

5 Do I have to accept what insurers offer me? Assessing the value of a used vehicle is not an exact science and there is often room for negotiation. If you are not happy with the amount your insurer offers you to settle your claim then challenge it but you will need to arm yourself with evidence to support your case. Here are some things you could use: Look up the value of your car in some valuation guides such as Parker's and Glass's, which offer reputable valuations for a wide range of vehicles of various conditions and ages. These are available either in hard copy or online. Remember to look for the trade value, not the forecourt price. The prices quoted are based on extensive nationwide research of actual selling prices rather than just advertised prices and are more likely to be trusted by insurers. Make sure that when you do any calculations you allow for the specific mileage, condition and model of your vehicle. Gather the service history records for your car and anything else you feel adds to its value, such as evidence of new parts and tyres. Consider paying for your own independent engineer's report but remember this will add to the cost. So think carefully about whether you may be laying out more than you could get back if you persuade insurers to increase their offer. Evidence from an independent engineer can be particularly helpful, if your car is non-standard for example, because it has been heavily modified. Look for adverts for your make and model of car on websites or in trade magazines. These can be useful, but remember that small differences in condition, mileage, model type and year of registration can significantly alter the value. Don t forget that vehicles are often sold for less than the advertised price. If, after presenting your evidence and negotiating with your insurer, you still aren't happy, you can take your case to the Financial Ombudsman Service (FOS), which will take an independent look at your case free of charge. However, the FOS is unlikely to uphold a complaint where the insurer has offered a fair value within a reasonable time and in accordance with the motor trade guides.

6 What happens if I have an outstanding loan on my car? Insurers will make a payment directly to the finance company to pay off any outstanding loan, provided the value of your car is sufficient to cover this. If the claims money is not sufficient to pay the loan in full, you will still be responsible for the balance. On the other hand, if there is money left over after paying the finance company this will be paid to you. Insurers will pay off your outstanding loan direct to the finance company Am I entitled to a premium refund? Most motor insurance policies are yearly contracts so the full premium is payable even if the vehicle is written off during the year. If you have paid the whole premium upfront, you will not receive any refund. If you paid your premium by monthly installments, you will be asked to pay any installments which are outstanding, before insurers settle your claim.

7 What can I do to protect myself from any shortfall in total loss payments? There are two options for protecting yourself against shortfalls in total loss payments. Weigh up your options before committing to a policy One is to consider Guaranteed Asset Protection (Gap) insurance. This is a policy that covers you for the difference between the value of your car when you buy it and the payout you might receive in the event of a total loss. By paying a premium, you can bridge the gap between the two figures which may be significant. It can be particularly valuable if you bought the car with a loan or on a contract hire deal, where you could be left with no car but large payments still owing in outstanding finance. Note, though, that Gap insurance has come in for some criticism, so make sure that you do your research and understand what you are buying before committing to a policy. Another alternative is a guaranteed value policy offered by some insurers. In the event of a total loss claim, these require the insurer to pay an amount which is agreed at the time of arranging cover. But such policies are unusual and tend to be used for vehicles such as classic cars and modified cars where their true value is more difficult to establish. Remember also that such policies are likely to come with a higher premium.

8 What happens to my car after it is declared a total loss? If your claim is being settled on a total loss basis, then your insurer will usually keep the vehicle (known as salvage) and will sell it to offset its costs. There are strict rules about what can happen to your car once it is declared a write-off. This is to prevent vehicles being repaired and put back on the road when it is not safe to do so. Your car will be put into one of 4 categories according to the severity of the damage, under a voluntary code agreed between the Association of British Insurers (ABI) and salvage dealers: Category A vehicles are to be kept off the road and crushed. These are vehicles which have suffered significant damage including fire and flood damage and which, even with repairs it would not be safe to put back on the road. Category B vehicles are also to be kept off the road, but could be broken up for spare parts. These have sustained severe damage to the chassis or structure of the vehicle and are not safe to be put back on the road. They may, however, have spare parts, such as radiators, which could be safely sold on and used to repair other vehicles. Category C vehicles are repairable, but uneconomical to repair. These are vehicles that have sustained heavy damage, for example to the bodywork. They are capable of being repaired, but have been written-off by the insurance company as the costs of repair exceed the value of the vehicle. They are, however, safe to repair. Category D vehicles are repairable economically, but written off for some other reason. These are vehicles which have suffered only minor damage and could be safely repaired. All category A, B and C vehicles must be notified to DVLA. Only category C and D vehicles can be put back on the road. Category C vehicles must pass a Vehicle Identity Check before doing so. This is to confirm that the vehicle is the original registered one and not stolen its roadworthiness or repairs are not looked at. A Vehicle Identity Check is not required for Category D vehicles. Buying your car back after a total loss settlement may be possible provided it has not be classified as either Category A or B.

9 Can I keep my vehicle? If you ask to keep the salvage, your insurer will deduct what it would have been able to sell the salvage for from the total loss figure although this is usually not very much. All total losses and thefts are registered on the MIAFTR database How do insurers prevent fraudulent total loss claims? Insurers register all total losses and thefts on an industry computer database known as the MIAFTR (Motor Insurance Anti Fraud and Theft Register) database. Subsequent insurers will then be alerted if a further total loss claim arises on the same vehicle.

10 Remember if you have any questions about vehicle write-offs, just ask me, Ciindy /AskCiindy