When Gabriel was involved in an accident, he was told by his insurer that it was not viable to repair his 2006 Audi, and that the car would be “written off”. The insurer paid him out the book value of the car – R76 000 – but retained the damaged vehicle.
The challenge for Gabriel is that, technically, he could buy another 2006 Audi with the insurance payout, but he is unlikely to do so as a 13-year-old second-hand car will probably come with a whole lot of problems – especially if you are not familiar with the history of the car.
At the end of the day, he is going to have to spend more money than he has been paid out, leaving him unexpectedly out of pocket despite having comprehensive insurance.
He is also frustrated that the insurer kept his damaged car.
“I was told I could buy it back from them and have it repaired if I wanted to, but that they now owned my car. It doesn’t make sense that they get to keep my asset. Is this correct? Are they allowed to do that?”
City Press spoke to short-term insurance companies Santam and MUA Insurance Acceptances, neither of which were involved in the claim, to understand what the industry norm is when it comes to written-off cars.
HOW IS A WRITE-OFF DETERMINED?
This can be a debatable point because the insurance company’s assessor ultimately makes the decision about the value of the repair, or whether irreparable structural damage has occurred. Panel beaters that are contracted to insurance companies may charge more than your local repair shop, thereby reaching the write-off point sooner.
While you can question the quote, the insurer is unlikely to agree with you.
Dawie Loots, CEO of MUA Insurance Acceptances, says insurance companies work with service providers that offer a guarantee on the work performed, which might not always be accessible to a client in their own capacity.
According to Loots, insurers calculate the write-off rate differently and each has their own method of establishing when a vehicle will be written off. An insurer sets a threshold based on the insured value of the vehicle, which can either be retail, market or trade value.
Loots says that, for example, an insurer might follow a 60% rule – if a car is insured for a retail value of R100 000 and the estimated cost of repairs exceeds R60 000 (60% of R100 000), the insurer will determine that the car is uneconomical to repair.
The insurer might then elect to rather pay out the insured for the full insured value of R100 000 (less any excesses if applicable), or to replace the vehicle with another one of the same or similar make and model, rather than repair the vehicle.
John Melville, head of risk services at Santam, says that a vehicle is a write-off not only if it does not make economic sense to repair it, but also where the extent of the damage includes serious structural defects that could affect the safety of the vehicle if it continues to be driven.
WHY DOES AN INSURER KEEP THE CAR?
According to Melville, the principle of insurance is to put the insured in the same financial position that they were in immediately before the loss or damage occurred.
Santam’s policy is to acquire ownership of the wreck under a practice called subrogation as it “serves to avoid unjust enrichment of the client because the client was already fully compensated for the loss of the vehicle”, says Melville, who explains that if the client also received money from selling the parts of the vehicle, they would be overcompensated.
According to MUA, this situation is called “betterment” and is specifically excluded by insurers, and is standard procedure.
WHAT YOU NEED TO KNOW
Choose insurance plan: The “retail value” is the price that a dealer would sell the car for and is linked to a central database of recent sale prices. This is the closest you can get to the full replacement cost.
You may want to cut premium costs by insuring at “trade value”, which is the price a dealer would pay you if you sold your car to them, but you would receive less money than if it was insured at retail value.
“Market value” is what a willing buyer is prepared to pay a willing seller, and usually falls between the trade value and retail value.
The less you insure it for, the greater you will be out of pocket if your car is stolen or written off.
Have emergency funds: Irrespective of whether your car is repaired or written off, you will have to pay an excess fee unless the accident was not your fault, in which case your insurer can claim the excess from the other driver.
If your car is stolen or written off, it is unlikely you will replace it with exactly the same model, so you may end up forking out extra money. You could take out car finance, but if you want to remain debt-free, you would need to have some funds available.