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Thursday, April 1, 2010

Market value...what's that???


After my friend Gilbert read my posting, "Why must motor insurers have it both ways", he emailed me to suggest that I say something about "market value" insurance.

He says: "Notice how they charge you a premium for X $ for the value of your car which is based on market price."

"So what is the market value in dollars and cents that determines the premium?" he asks.

Gilbert makes a valid point. And the answer is very simple: Only the insurer knows what the market value is and he decides. The car owner has no say...absolutely.

Long gone are the days when you can determine the value of your car and have it insured accordingly.

If I remember correctly, the motor insurance industry did away with that because it affected the premiums that they could collect.

This was how it used to work: for example, if you valued your car at $100,000, you would pay the premium based on that amount. The following year, upon renewal, you could lower the value to, say, $80,000 because of depreciation. That way, your premium was reduced as you were insuring it for a smaller amount.

Then, lo and behold, the insurers suddenly started using the "market value" method of insuring our vehicles. The change, sadly, did not give rise to any public debate or cause a stir.

Personally, I do not have a problem with this "new" method if the insurers could state categorically the market value of our cars at the point of policy renewal.

This is only fair because, by not doing so, your fate is left totally in the hands of the insurers should there be a claim.

Also, with knowledge of the proposed insured value, one could have an idea whether one is paying a reasonable premium by shopping around for quotes from other insurers.

Short of being pressured by the authorities, it is highly unlikely that our motor industry would return to the old method of insuring our vehicles.

Consider this: If insurers can insure a house against fire for a fixed sum of money, I see no reason why they cannot do the same for vehicles. Isn't it quite obvious there is something terribly wrong?

Why should anyone be happy if he has to pay more in premium each year knowing full well that the value of his asset has gone down in value???

8 comments:

  1. car can be insured with either of the following options:

    (1) market value ( present most practice)

    (2) sum insured (car owner to decide the insured value. however, when accident total loss to car, the claim payable will be the prevailing market value of the PREACCIDENT condition of the car or sum insured whichever is lower + subject to policy excess)

    (3) agreed value (not common now a day) (may be applicable to exotic car, vintage car or car with special sentimental value. owner to decide on the value and subject to insurers to agree on same value. when accident total loss to car, the agreed value will be the claim amount + subject to policy excess if any)

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  2. Thanks for the info. Most car owners will tell you that their insurers these days do not bother to tell them that they can go for "sum insured" or "agreed value" as well. I certainly wasn't told. It is only fair that for "sum insured", both sides agree on the market value first before the policy is assigned. That way, there will be no problem over the question of market value in the event of a claim. I doubt insurers will agree to this.

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  3. when car is on total loss, car owner and insurance company may still dispute over the total loss claim settlement amount when car is insured under "sum insured".

    reason - the total loss claim settlement sum is based on the prevailing market value of a similar car make/model of preaccident condition as at date of accident OR the sum insured whichever is lower.

    it is only when car is insured under "agreed value", then, there will be no argument if car is on accident total loss settlement

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  4. Hi

    Do you have any comment on the recent press releases on "MOTOR INSURANCE TASKFORCE’S RECOMMENDATIONS TO ADDRESS ESCALATING PREMIUMS ISSUE"?

    link : http://www.case.org.sg/news.html

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  5. In other words, "sum insured" boils down to the same thing as "market rate" when there is a total loss claim. This gives rise to uncertainty and dispute. In such a situation, the insurers' view usually prevails...unless policy-holders are prepared to challenge them at Fidrec or in court. Very few people do.

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  6. On the Motor Insurance Task Force recommendations,
    my view is that they are only as good as their implementation and enforcement. We will just have to wait and see.

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  7. i suppose resolving own damage total loss settlement thru FiDRec or in Court is the last resource. usually insurance company are willing to sit down with customer to discuss for an amicable settlement so long as the customer is "not unreasonable".

    very importantly is - car owners are to be mindful not to take high or over hire purchase car loan. i heard from friends that dispute usually arises when car owner desire to have high market value settlement and hoping to have the total loss settlement to help them to resolve their high o/s loan or over finance.

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  8. Yes, I agree that is another problem.

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