IFSO Case Study

When Rawiri’s* car was damaged in the Auckland floods, he thought he would be fully covered, having arranged car insurance with an agreed value of $19,000 just a year earlier.

However, when Rawiri made his insurance claim, the insurer offered him just $14,000, after deduction of a $400 policy excess. This was based on Rawiri’s latest policy renewal documents, which the insurer had sent him a month prior to the flood. His renewed policy had a lowered agreed value of $14,400, a 24% decrease.

Unfortunately, this amount was below the market value of the car. Rawiri complained, saying the decreased agreed value hadn’t been properly communicated to him.

The IFSO Scheme believed that a 24% reduction in agreed value for a used car after just one year was unusual. As vehicles get older and depreciate, insurers normally reduce their agreed value at the time of policy renewal, however not usually as much as 24%.

Generally, it is up to an insured person to read and understand the terms and conditions of their policy. However, the law requires unusual clauses to be brought fairly to the notice of the insured.

The insurer hadn’t included any warning in its cover letter or email alerting Rawiri to the decrease, and the agreed value stated on page 3 of the schedule was not highlighted in any way.

Following the case manager’s discussions with the insurer, it offered to settle the claim by paying Rawiri $17,500.

Complaint settled

* name changed

The law requires insurers to bring any onerous or unusual terms to the attention of their customers. In this case, the insurer should have clearly notified its customer of the unusual reduction in the agreed value of the car.

December 2023

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