Motor insurance: why declare vehicle value if insurer won't use it but will reassess 'market value'?

SouthLondonUser

It is probably a banal question, but can you please help me understand how declaring the vehicle (I guess it's the same for cars motorbikes etc) value when insuring it works?

I understand that insurers won't pay what you declare as the value, but will pay based on their assessment of the 'market value' at the time of the claim. So if you declare it's worth £10,000 but they assess it's worth £7k, guess what, they will pay £7k (minus excess minus whatever else they can get away with). Right?

How about the other way round? If you declare it's worth £7k but the market values is higher, say, £8k, will they pay £7k or £8k? This genuinely happened when the price of used cars went up after covid.

In other words, is the value you declare a cap on the maximum value the insurer would pay? If not, what on earth is the point of even declaring it?

I ask for curiosity, but also because I noticed that insurance prices do change based on the value you declare; obviously I'm not saying you should declare a Lamborghini is worth £1,000, but there is some genuine wiggle room when assessing the value of a used vehicle, especially one that is not so common (some cars, but also most motorcycles - dealers can take months to sell a used motorcycle).

caprikid1

If you have an agreed value policy then you will get that value.

Sandtree

Each insurer is different, some will state that it is the lower of market value or your declared value but many don't. Obviously intentionally giving a wrong answer allows the insurer to void the policy under CIDRA so anything but a defensible estimate would be risky.

The last insurer that I did pricing work for on Motor the only thing they used it for was determining if a tracker was required for the vehicle... some vehicles were required irrespective of the declared value but all other vehicles needed one if the customer declared the vehicle worth more than £50k

SouthLondonUser

Sandtree said:

 Obviously intentionally giving a wrong answer allows the insurer to void the policy under CIDRA so anything but a defensible estimate would be risky.

Obviously. Like I said I wasn't advocating that. You can't / shouldn't tell porkies. But if your car/bike is a few years old, you bought it a few years ago and you see similar vehicles on autotrader in a range of £1-2k, that's different, that's not telling porkies.

How do I find out if it is an agreed value policy or not? Does it need to be explicitly stated in the documents they send you, or can it be hidden in some obscure PDF on their website which they don't even share directly with you?

I have double checked 4 of our last policies (I always save all the documents on a drive) and couldn't find any reference on whether they were agreed value policies or not.

Ebe_Scrooge

SouthLondonUser said:

but there is some genuine wiggle room when assessing the value of a used vehicle, especially one that is not so common

This is where the Agreed Value policy comes into play, as stated by caprikid.  It's very commonly used on classic cars, or rare cars, where it would be genuinely difficult to assess the current market value.  The policy costs more than a "standard" policy, and there's quite a few hoops to jump through to arrive at/prove a realistic value that's agreeable by both parties.

Must admit, every time I get an insurance quote, I stick in the reg number and it gives me a value, which I just accept.  Admittedly my cars are always very ordinary, standard, run-of-the mill cars and always quite a few years old when I buy them.  Where you do hear of problems is for instance with a brand-new car - if you buy it for £20,000, it loses a couple of grand the moment you drive it off the dealer's forecourt as it's no longer brand new.  Hence the popularity of Gap Insurance.

Ebe_Scrooge

SouthLondonUser said:

How do I find out if it is an agreed value policy or not? Does it need to be explicitly stated in the documents they send you, or can it be hidden in some obscure PDF on their website which they don't even share directly with you?

I have double checked 4 of our last policies (I always save all the documents on a drive) and couldn't find any reference on whether they were agreed value policies or not.

An Agreed Value policy is a very specific type of policy - if you've got one, you'd know it :-)

If you're interested in looking into it, just Google for "Agreed Value Motor Insurance" or similar.  Plenty of firms offer them, but they do tend to be quite a bit pricier than a standard policy.  Unless you've got a particularly rare or classic car, it's not usually worth it for the extra cost involved.

Sandtree

SouthLondonUser said:

Sandtree said:

 Obviously intentionally giving a wrong answer allows the insurer to void the policy under CIDRA so anything but a defensible estimate would be risky.

How do I find out if it is an agreed value policy or not? Does it need to be explicitly stated in the documents they send you, or can it be hidden in some obscure PDF on their website which they don't even share directly with you?

You would know because you'd have sent photos of the car, its records, possibly had someone round to inspect it before the policy starts etc... its mainly used for classic cars or other rarities. You don't just get to decide the value, the insurer has to agree that's the realistic value of the vehicle.

Years ago I did look at introducing fixed value policies into the mass market using Glasses data but it really needed the current mileage which was a barrier to people quoting and it just didn't fit with the clients proposition at the time... did have a lot of interesting debates about how pricing should work especially if the site said the car was worth say £20,000 but the customer stated they wanted to insure it for £15,000

Car_54

Ebe_Scrooge said:

SouthLondonUser said:

but there is some genuine wiggle room when assessing the value of a used vehicle, especially one that is not so common

This is where the Agreed Value policy comes into play, as stated by caprikid.  It's very commonly used on classic cars, or rare cars, where it would be genuinely difficult to assess the current market value.  The policy costs more than a "standard" policy, and there's quite a few hoops to jump through to arrive at/prove a realistic value that's agreeable by both parties.

Must admit, every time I get an insurance quote, I stick in the reg number and it gives me a value, which I just accept.  Admittedly my cars are always very ordinary, standard, run-of-the mill cars and always quite a few years old when I buy them.  Where you do hear of problems is for instance with a brand-new car - if you buy it for £20,000, it loses a couple of grand the moment you drive it off the dealer's forecourt as it's no longer brand new.  Hence the popularity of Gap Insurance.

Possibly the opposite at the moment.

SouthLondonUser

I see, thanks! So no, I certainly do not have an agreed value policy
Does this mean I can safely assume that the insurer should pay based on market value, regardless of the value I declared? Obviously within reason, we have been through that, this is not about lying, nor about declaring that a Lamborghini is worth £1,000.

In other words, if I genuinely think my vehicle is worth between, say, £7k and £8.5k, and I see similar used vehicles on autotrader in this price range, then I should declare the lower value if it results in a cheaper insurance (and every time I tried, it actually does)?

@sandtree, do you work in the insurance industry? I have always had the impression that pricing optimisation, which is illegal in some countries but not the UK, practically results in pricing algorithms going crazy. E.g. I have seen prices first going up 10% then down 25%, all in the space of 36 hours (same insurer, same vehicles, same everything). Or I have seen two identical vehicles (only the registration was different, same make model year version etc) receive two different quotes, one a good 15% more expensive, all in the space of minutes. I say "vehicles" because I have seen it more often with motorcycles but also with cars.

Sandtree

SouthLondonUser said:

I see, thanks! So no, I certainly do not have an agreed value policy
Does this mean I can safely assume that the insurer should pay based on market value, regardless of the value I declared? Obviously within reason, we have been through that, this is not about lying, nor about declaring that a Lamborghini is worth £1,000.

In other words, if I genuinely think my vehicle is worth between, say, £7k and £8.5k, and I see similar used vehicles on autotrader in this price range, then I should declare the lower value if it results in a cheaper insurance (and every time I tried, it actually does)?

@sandtree, do you work in the insurance industry? I have always had the impression that pricing optimisation, which is illegal in some countries but not the UK, practically results in pricing algorithms going crazy. E.g. I have seen prices first going up 10% then down 25%, all in the space of 36 hours (same insurer, same vehicles, same everything). Or I have seen two identical vehicles (only the registration was different, same make model year version etc) receive two different quotes, one a good 15% more expensive, all in the space of minutes. I say "vehicles" because I have seen it more often with motorcycles but also with cars.

No, as mentioned, a tiny number of insurers will state the lower of market value and declared value... these tend not to be the direct household names though.

I've worked in insurance for 20 years, initially in claims and subsequently in strategy/change but in recent years I've not been looking at mass market consumer insurance and probably too much time on reinsurance (other than a short trip into annuities/pensions) 

Getting ML/AI involved in pricing is more recent than my time but even then we were looking at things like elasticity and propensity modelling to ensure the premium is adjusted to get the right customers etc. Even in my time though we had champion/challenger pricing so 90% got our current/"champion" price, 5% got a loaded price and 5% got a discounted price and from this we could assess elasticity to guesstimate what the consequence would be if we increased London pricing by 10%.  Whilst its random it had to be repeatable to ensure the 10% online discount messaging etc was true and so a seed from the quote data was used. We didn't use vehicle registration but potentially someone could.

400ixl

That question is used to help the insurer decide if it needs to be sent to the underwriter for special consideration, it's not there to determine and agree to the value they would pay out for a claim.

So if you put in a high valuation, maybe because it is a classic car or there is some other reason, then it would flag it as one for review before providing a quote through the automated rating tables.