Used car prices are soaring and it’s impacting your insurance
LIZO MNGUNI Mnguni is a spokesperson for Old Mutual Insure.
THE DEMAND for used cars has exploded since the start of the pandemic, thanks to a global semiconductor and microchip shortage, which has impacted the availability of new cars. This has also led to soaring prices for second-hand cars, and insured motorists could be paying the price. Today’s rocketing car market may pose a problem for your car insurance coverage in the event that you have a major accident, your car is stolen, or your vehicle is damaged. Worse, you could be under-insured, and possibly thousands of rand out of pocket. Old Mutual Insure has noticed a trend of rising second-hand car prices in South Africa, in line with the global phenomenon. The trend is most notable in cars manufactured in 2019 and last year. This is largely due to new car buyers who are not willing to be at the end of long waiting lists for brand-new vehicles, opting to purchase a 2019 or 2020 model equivalent instead. Demand for new vehicles is being diverted to pre-owned vehicles. Used cars manufactured last year and in 2019 have benefited the most, experiencing an annualised increase in their trade values of about 1.5 percent. There are also issues with the global car supply chain, where availability of second-hand parts are hard to come by. Another trend is that car depreciation is a bit lower than what it usually is because the demand is so high. What does this mean for your car insurance? Your insurance provider will automatically adjust your vehicle premium at your policy’s renewal, using the latest price information to determine the new premium. Given the rising prices of the second-hand car market, some policyholders must be aware that they might experience a larger increase in their premium at renewal stage, rather than a decrease, as their vehicle might be worth more than what they initially insured it for, or bought it for, given that there has been minimal car depreciation. Why the difference in premium? When the insurer calculates your premium, they account for the total loss should you have an accident or experience damage to your vehicle. Fender benders and bumper damage can be costly to repair. Also, bumper bashings occur more frequently than total write-offs. This is why your premium increases at renewal stage even though your car value normally decreases. With the scarcity of many makes and models, your car may be worth more than it was when you took out insurance, which means you could be under-insured. The onus is on the policyholder to speak to the insurer to confirm that the sum the vehicle is insured for is accurate. You can insure your car for different values. To understand how your premium will be calculated, know the difference between the insured values referred to as retail, trade or market. Retail value is the cost of your car should you purchase it from a dealership. Trade value is the price a dealership would pay for your car. Market value is the price a potential car buyer would probably privately offer you to buy your vehicle. We urge drivers to look at the specifics of their car and engage with their insurance policy. If in doubt whether or not you may be out of pocket at the claims stage, speak to your insurance provider or broker before the unfortunate happens.