Deciding between agreed value or market value car insurance typically boiled down to two things: the car you drive and how much you wanted to spend on the premium?
However, since 2020, this question has becoming much more complex to answer.
‘Market Value’ is a recognised insurance industry term for what your car would fetch in the open market at the time of making a claim. It is determined by your insurer based on a number of factors such as the make and model of your vehicle, its condition, age, the accessories fitted, how many kilometres it has travelled, and its service and accident history.
‘Agreed Value’ is a sum that has been fixed after discussion and agreement between you and the insurer when you take out or renew a policy. An agreed value car insurance policy generally attracts a higher premium as the agreed value of your car is usually higher than what it would sell for on the open market, i.e., its market value.
Since the start of this decade, vehicle prices have soared due to a number of factors, but there is one overarching factor that has thrown the entire car industry into shambles – its ongoing semiconductor shortage.
Although automotive isn’t the only industry affected, the sheer number of electronic components in modern cars that require semiconductors is what has made it such a pressing issue. The shortage of new cars has also been fuelled by colossal demand, closure of manufacturing facilities for Covid lockdowns, and Russia’s invasion of Ukraine which is causing nickel shortages used in the production of electric vehicles.
Given the short supply of new cars, high prices, and long waiting lists for those who have ordered new vehicles, many Australians are choosing to buy second-hand cars as an alternative. According to recently released data by Moodys, the credit rating company, the current prices of used cars has increased on average by 34%.
With these industry dynamics in play, it is no longer a reasonable assumption to consider Agreed Value will yield a better total loss settlement payout compared to Market Value. In fact, many used vehicles are now worth more than when they were first manufactured and sold!
Also, if you have managed to source a new vehicle, it’s worth noting that most motor vehicle insurers now offer a replacement vehicle when the insured vehicle is written off or stolen if the vehicle was purchased new from the manufacturer and is less than 24 months old from when it was first registered.
Clearly, it would be prudent to seek advice from an insurance professional before deciding the basis of the insuring value for any vehicle you own or acquire.