La Nina's playing havoc with our car insurance as well as the weather

Fact Checked
Updated 28/09/2022
La Nina's playing havoc with our car insurance as well as the weather

More than 22,000 cars were written off during the floods this year.

Time to read : 3 Minutes

La Ninas Playing Havoc With Our Car Insurance

The recent floods in Queensland and New South Wales saw over 22,000 vehicles written off - but that's not the end of the nightmare for drivers.

🚗 Many car owners are finding that their insurance pay out is a lot less than the car is actually worth, leaving them severely out of pocket.

😱 There's a shortage in both new and used vehicles due to Covid playing havoc with global supply chains - and that's sending prices spiralling.

👀 If you have an 'agreed value' car insurance policy rather than a 'market value' policy, that could leave a massive difference between your insurance payout and what you'll need to spend to get the same vehicle.

  • If you bought a new car last year for $30K, that same car could now be worth $40K, leaving you $10K out of pocket.

  • It's an unusual situation as vehicles tend to drop in value over time, not rise.

  • So, yup, thanks to Covid and inflation, it's likely that a lot of drivers are now under-prepared and under-insured.

The lowdown on 'market value' car insurance policies

The market value of your car is determined by your insurer and is the price your car would be fetch if it was sold in its current state – prior to it being written off.

  • A write-off under a market value policy means your insurer will pay you out what they determine your car would be worth if sold today.

  • When making that estimate your insurer will take into consideration your car's age, condition, model, kilometres and history.

  • This type of insurance can be cheaper than agreed value, but the risk is usually that you'll get a lower pay out than what you need to replace it.

Be aware: Market value is not the price of replacing your current car with a new car equivalent. It's how much it's worth today.

And due to a very unique chain of events, today it could be worth more than you paid for it.

So what's agreed value?

The agreed value is the amount that you and your insurer agree on when you buy the policy. It's often a little bit more expensive.

  • This can be particularly useful if you owe money on the car, which means you won't have to cover any missing gap in the event you need to replace it.

  • It also means you won't have to worry about your vehicle depreciating in value or being in less-than-perfect condition if it's written off.

  • You'll also know exactly how much you will get paid out for your car, allowing you to either replace it with a similar option or take the cash instead.

Be aware: if you've got an agreed value policy and your vehicle goes up in value, there's very little you can do about it.

The Australian Financial Complaints Authority (AFCA) recently ruled in favour of the insurer in a dispute over agreed value. Suncorp settled for $33,600 but the driver valued the vehicle at $55,000.

The bottom line

La Nina and Covid have conspired to flip the traditional state of affairs around agreed and market value on its head.

It's a really good time to check what you car is covered for and to adjust your policy if you think there's a difference, especially as Australia looks set for a third summer of extremely wet weather.

The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions.