Car Insurance settlements are ‘undervalued’ says Financial Ombudsman Service

Three quarters of car insurance settlement offers are undervalued, according to research from the Financial Ombudsman Service (FOS) and ALA Insurance Services.

The FOS has reported a seven per cent rise in car insurance complaints between 2012 - 2013, with the majority of correspondents relating to undervalued offers in the event of a write off or total loss.

Between April 2012 and March 2013 there were 7785 complaints to the FOS relating to motor insurance, with roughly half of these upheld in the favour of the consumer. In the previous year (2011/12) there were accusations by the Ombudsman that insurance companies were in fact offering valuations based on trade value rather than retail.

Market commentators suggest that trade in values are, on average, £1400 lower that market value, leaving thousands of claimants out of pocket.

Despite the rules being clear, some insurance companies are not following them

David Cresswell of the Financial Ombudsman Service said: “Despite the rules being clear, some insurance companies are not following them. We uphold about half of complaints [we receive] in favour of the consumer. That is usually because the insurer has used the so-called trade price. That is the price that a dealer would pay."

A number of fully comprehensive car insurance policies only offer new car replacement during the first 12 months of ownership. If a car is written off after the 12 period the pay-out is likely to leave the customer out of pocket.

GAP insurance is designed to cover the depreciation of a vehicle and pay the difference between the market value settlement and the original price paid for the vehicle.

ALA is one of the few GAP insurance suppliers that doesn’t include market value reduction clauses. They pay the complete difference between the insurance company’s settlement and the original price paid for the car – regardless of what the insurance company settles at.