One of the many unusual trends which we have seen emerge during recent months is a change in the values of used cars.
When you buy a vehicle, it is usually in the knowledge that its value will eventually depreciate. This is not always the case and limited or lower production specialist motor cars can hold their value or even appreciate and the rise in values of many classic vehicles has been widely reported from across the sector and into mainstream media in some higher profile cases.
However, startling statistics published this year have revealed a drastic rise in the values of second-hand cars, transforming the marketplace. But what has driven this trend? And, more importantly, what impact could this have on your motor insurance?
The factors driving rising prices
Disrupted supply of new vehicles appears to be one of the main factors driving this surge in prices. As we have reported during the year, an ongoing shortage of semiconductor chips has had a significant impact on automotive production globally, with many factories unable to keep up with demand.
From safety features and engine management systems, to touchscreens for entertainment, semiconductor chips are used in a myriad of vehicle features, no longer the preserve of luxury models. Without them, cars will be missing some of the key modern characteristics we have come to expect and production has slowed significantly as a direct result.
BMW in North America, as an example, has begun to offer some models without touchscreens, to enable consumers to continue purchasing cars despite the chip shortage – other manufacturers may follow suit in future.
This chip shortage has also caused interruptions to supply chains – another factor driving price surges. Modern car production relies on strong, reliable supply chains to function on time. As cars move along the assembly line, parts are waiting to be fitted. Manufacturers will rarely stockpile any components. Any break in this chain will therefore have an instant impact on production.
The chip shortage means that car dealers are experiencing increased delivery times, with some of the most popular models currently quoting up to eighteen months.
This situation has prompted many potential buyers to either delay plans to buy a new car or choose nearly-new instead, driving values of used cars upwards.
Other factors contributing to delays include disruption to the supply of raw materials used in making car bodies and engines. Brexit has also impacted the price of new cars made in Europe.
Recent industry figures make for astonishing reading: small hatchbacks show value increases of almost 60% (Mini) versus the same model in 2019 at around two years old. Values of more exotic, prestige and sporting orientated models have also risen over the same period.
What this all means for your insurance cover
Most insurance policies operate on a market-value basis. This means that if your vehicle is stolen or damaged beyond repair, the policy will pay based on the value of the vehicle at the time of the loss. Insurers use motor industry data to arrive at a figure. This should factor in market fluctuations to ensure that the settlement figure is accurate.
If your policy is on an agreed-value basis, it will effectively lock in the value at inception and each subsequent renewal. This is the figure the insurer will pay in the event of a 'total loss' claim, be this following theft or accident.
Agreed-value cover has usually only been offered to the owners of classic vehicles with the figure being reviewed periodically. Right now, we would advise more frequent reviews, as the values of many classic cars have risen significantly.
Lockton Collector's car policy takes this a step further and can provide agreed value cover for much newer cars, including brand-new. This is of particular benefit where a vehicle is a limited production model, or one that has been specified to a high level by the individual owner.
If your car is less than two years old, and worth less than £750,000 then our policy will pay as follows. In the event that the car is declared a total loss (following an accident or fire or stolen and not recovered:
- The insurer will replace your vehicle with an identical new vehicle of the same type and specification as your vehicle
- The insurer will pay up to the agreed value figure if it is higher than the cost to replace with a new vehicle
- If your car is over two years old, less than fifteen years old and worth less than £750,000, insurers will pay up to 150% of the agreed value to replace your vehicle with a comparable one
- If it is worth over £750,000, they will pay up to 125% of the agreed value to replace it with a comparable vehicle
- If your car is over fifteen years old, then they will pay up to 125% of the agreed value, or £250,000, whichever is less, to repair the vehicle to its pre-accident condition
- If your vehicle is partially damaged following an accident or other insured incident, the insurers will pay up to the agreed value figure for the car to be repaired to its pre-accident condition.
These scenarios should give you the peace of mind that you should not find yourself in a situation where your vehicle is underinsured.
You can amend your agreed valuation at any time. This may need to be supported by an independent valuation from a recognised source, such as an owners' club or specialist dealer.
In the current climate, we would recommend that you review the values of your car or collection, to ensure that they remain accurate and adequate.
We will be happy to provide any assistance, although we are not able to give advice as to the value of any specific vehicle. Please contact us using the details below if we can help at all.