Flood damaged car not fully covered

In this case, the insurer should have clearly notified its customer of the unusual reduction in the agreed value of his car.

Flood damaged car not fully covered

When Rawiri’s* car was damaged in the Auckland floods, he thought he would be fully covered, having arranged car insurance with an agreed value of $19,000 just a year earlier.

However, when Rawiri made his insurance claim, the insurer offered him just $14,000, after deduction of a $400 policy excess. This was based on Rawiri’s latest policy renewal documents, which the insurer had sent him a month prior to the flood. His renewed policy had a lowered agreed value of $14,400, a 24% decrease.

Unfortunately, this amount was below the market value of the car. Rawiri complained, saying the decreased agreed value hadn’t been properly communicated to him.

The IFSO Scheme believed that a 24% reduction in agreed value for a used car after just one year was unusual. As vehicles get older and depreciate, insurers normally reduce their agreed value at the time of policy renewal, however not usually as much as 24%.

Generally, it is up to an insured person to read and understand the terms and conditions of their policy. However, the law requires unusual clauses to be brought fairly to the notice of the insured.

The insurer hadn’t included any warning in its cover letter or email alerting Rawiri to the decrease, and the agreed value stated on page 3 of the schedule was not highlighted in any way.

Following the case manager’s discussions with the insurer, it offered to settle the claim by paying Rawiri $17,500.

Complaint settled

The law requires insurers to bring any onerous or unusual terms to the attention of their customers. In this case, the insurer should have clearly notified its customer of the unusual reduction in the agreed value of the car. 

*Name has been changed

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The IFSO Scheme regularly investigates disputes about insurers reducing vehicle values at the time of policy renewal. Each case is different. When considering what outcome is fair and reasonable in these cases, we take into account the following factors: 

  • If the vehicle is substantially underinsured based on the market value;
  • If the vehicle was not new and had experienced a significant decrease in the agreed value on renewal (more than 20%);
  • How policy changes were presented in the renewal documents (for instance if a change in agreed value is mentioned on the front page, or much further into the renewal documents);
  • How many renewal cycles have occurred;
  • Whether there had been significant decreases of the agreed value in the past;
  • Whether the insured had previously altered the agreed value;
  • If the insurer is responsible for the underinsurance; and
  • Any other factors the IFSO Scheme considers relevant.

Taking into account the factors above, if compensation is recommended by the IFSO Scheme, it will usually be the lesser of: 

  • the market value of the vehicle, or 
  • the agreed value of the vehicle in the prior policy period. 

See the full case study.