Supply chain risks are impacting the car market, including your insurance

Lizo Mnguni, spokesperson for Old Mutual Insure

The pandemic and Russia/Ukraine conflict has caused havoc in the motor industry due to lockdowns across the world, parts shortages, computer chip shortages, and supply chain disruptions. This has led to a significant shortage of new vehicles. For the first time, second-hand cars are increasing in value. Now a new threat looms: A possible glass shortage, which is being brought on Europe’s energy crisis. News reports suggest that global car manufacturers are stockpiling components with glass, such as windshields and windows, or searching for new suppliers outside of Europe.

“Although this is not something that is impacting South Africa at the moment, it is likely to filter down to us in the coming months, which will most certainly either play out in a shortage or delay in getting parts for fixing car windshields, amongst others,” says Lizo Mnguni, spokesperson for Old Mutual Insure, who adds that today’s rocketing car market may pose a problem for your car insurance coverage in the event you have a major accident, your car is stolen, or your vehicle is damaged.

“The demand for used vehicles has exploded and this is having a knock-on impact on policyholders, who are finding themselves with the short-end of the stick when it comes to claims stage,” says Mnguni.

He explains that the retail values received from industry guides are no longer accurate due to the increasing value of second-hand cars. This has led to these values not following the usual trend where vehicle values decrease gradually on an annual basis.

“We are finding that a significant proportion of policyholders are currently underinsured and therefore in the event of a valid total loss claim, they find themselves unable to purchase the same or similar vehicle,” says Mnguni.

Mnguni says the trend of rising pre-owned vehicle prices is most notable in cars manufactured in the years 2019 and 2020. This is largely due to new car buyers who are not willing to be at the end of long waiting lists for brand new vehicles opting to purchase a 2019 or 2020 model equivalent instead.

He adds that some insurers are adjusting with the times and responding to the trend by introducing new products to ensure that consumers are adequately covered and don’t find themselves out of pocket when it comes to claims stage.

“We realise that there is a price gap that could negatively impact policyholders at claim stage,” says Mnguni.

Top-up products, or extensions on existing vehicle insurance, are being offered by insurers like Old Mutual Insure, which allows the insured value of a vehicle in the event of a total loss or theft to accurately reflect the correct vehicle value available in the market.

“Policyholders can select from various percentage options to increase the insured value of their vehicles, so it allows consumers to choose what suits their pocket best,” says Mnguni.

He adds that it is automatically incorporated for new policies unless a policyholder chooses to opt out.

“When it comes to optional extras like nudge bars, towbars, rollbars and spare parts, most insurance policies still maintain that these must be separately insured and it remains the customers’ responsibility to regularly review the values that these items are insured for, to insure that in the event of a valid claim, they are not underinsured.”

He adds that the onus is on the policyholder to further speak to their broker or insurer to ensure that the sum that the vehicle is insured for is accurate.

Below, Mnguni shares his top tips for insured vehicle drivers during this climate:

Policyholders must make sure they are buying their vehicles from reputable dealers when purchasing used vehicles. Don’t forget to look underneath the hood.

You can insure your vehicles for different values. To understand how your premium will be calculated, know the difference between the insured values referred to as retail, trade, or market. Retail value is the cost of your vehicles should you purchase it from a dealership. Trade value is the price a dealership would pay for your vehicles. Market value is the price a potential vehicles buyer would likely privately offer you to buy your vehicle. So, if your vehicles is written off and you’d like to purchase the same vehicles again, then you’d most likely want to be insured on a retail value basis, as this would cover the cost of buying the same or similar vehicles.

There are three types of vehicle insurance cover: Third-party, which is the most basic insurance coverage; third-party, fire and theft; and then, Comprehensive. Comprehensive insurance covers many things – some of which you may never have considered as being hazards to your vehicle; Natural Disasters, Falling Objects, Fire, Theft and Civil Disturbances. While the issue with the second-hand vehicles market isn’t specific to the type of insurance coverage you have, the problem if you don’t have insurance, is that if you drive into a fancy vehicle and are found to be liable, you could spend a large portion of your life paying for a vehicle that is not even yours.

If in doubt whether you may be out of pocket at claims stage, speak to your insurance provider or broker before the unfortunate happens.

“We urge drivers to look at the specifics of their vehicles and regularly revisit their insurance policy,” concludes Mnguni.

ENDS