Flood damaged car not fully covered

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

Vehicle insurance is the number one thing people complain about to the Insurance & Financial Services Ombudsman Scheme (IFSO Scheme), making up 23% (76) of all complaints the Scheme investigated in the past year.

In its Annual Report due to be released later this month, the IFSO Scheme shares a case in which an insurer substantially reduced the agreed value of a customer’s car without clearly informing them.

When Rawiri’s* car was damaged in the Auckland floods earlier this year, 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 because Rawiri’s latest policy renewal documents, sent to him a month before the flood, had listed his car’s agreed value as $14,400. This was a 24% decrease on the year before.

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

The IFSO Scheme investigated, and believed that a 24% reduction in agreed value for a used car after just one year was unusual.

When consumers take out comprehensive vehicle insurance, if their car is written off, the insurer will pay the agreed or market value of the car, depending on the type of policy. 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%.

The Insurance & Financial Services Ombudsman, Karen Stevens, says that generally it is up to an insured person to read and understand the terms and conditions of any policy, however, the law requires unusual clauses to be brought fairly to the notice of the insured.

“Where something like agreed value is reduced as substantially as 24%, we would expect an insurer to discuss this with their customer and make sure they’re aware of the change,” says Stevens.

“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,” she says.

Following the IFSO Scheme’s discussions with the insurer, the insurer offered to settle the claim by paying Rawiri $17,500.

“Insurers should clearly notify their customers if there is an unusual reduction in the agreed value of a vehicle, but it’s a good idea for customers to double check this too when they receive policy renewal documents. Then they can raise it if there is an issue,” says Stevens.

Stevens says that the IFSO Scheme has also seen cases with issues around market value.

“We recently had an enquiry from someone who had been offered $45,000 for their caravan in a total loss claim, however, they had received a valuation of $60,000, so were going to be speaking to their insurer about that.”

If people have a problem with an insurer they can make a complaint to the IFSO Scheme at www.ifso.nz or by calling 0800 888 202.

*names have been changed

Media contact

Sarah Smythe
IFSO Scheme Communications Manager
sarah@ifso.nz
021 292 4036