As a professional valuer, a lot of my work involves agreed value insurance. I provide pre-agreed valuations for classic and modified cars and motorcycles, helping owners to be fully protected should the worst happen and they end up in a total loss scenario.
Agreed Value Insurance is essential
Agreed value insurance pays out a pre-agreed sum in the event of a total loss claim. While owners of valuable new cars – usually low volume, high-performance models – often take out guaranteed value policies to account for the market premiums that can quickly double list prices for oversubscribed new models, agreed value policies are mainly seen on classic and modified cars and motorcycles.
Agreed value is essential on any classic car or motorcycle insurance policy. There are many reasons for this, but the main one is to ensure that your vehicle settlement in total loss matches the value of the car as closely as possible. Taking classic car insurance at market rate can lead to lower settlements, as insurers have control: they know your situation involves a major financial loss and most people just want to do the best they can in these cases, while also keeping stress to a minimum.
We have all heard stories from friends who, in total loss situations, were sent several low offers based on eBay project sales, later followed by one that was broadly in line with average market value. People often take the first sensible offer that comes in, rather than debating to obtain the correct market value, as they have endured enough stress by that point.
When an insurance write-off valuation is too low
I always recommend agreeing value up front, but this is not always possible. Such was the case in a recent valuation for an E91 Touring. The car was a high-spec example that was hit while parked just a few weeks after purchase. The damage was significant enough to make the car an uneconomic repair. By the time I was contacted, the owner had been offered low sums that were not supported by market observations. He was looking for assistance to build a portfolio of evidence to support a higher payout.
I don’t usually get involved with litigation unless instructed by solicitors, but there was good market data and it was a very recent purchase, so I did a little exercise to provide market clarity. The insurers went on to pay out the purchase price, as I felt was correct in this case, given the quality of the car and decent demand in the face of quite low supply. It is difficult to argue with well-presented data.
One area where people often go wrong with agreed value policies on modified cars is trying to insure for replacement cost, rather than market value. Well-researched market value leaves no chance of later debate, should the worst happen and the policyholder be in a total loss situation. One does not need to find selling prices for cars that perfectly match the spec of the car in question; comparables will do if the observations are correctly adjusted. But insuring for market price based on close observations makes the valuation more difficult to challenge down the road.
A recent client enquiry related to this: the owner opining that the point of agreed value was to bridge the gap between market value and replacement cost. This is not how I see it. In my opinion, the point of agreed value is not to narrow the gap between market value and replacement cost. The point is to capitalise on the opportunity to maximise market value ahead of a total loss situation and save oneself a boatload of stress. In doing that, we narrow the gap, but the point is maximising the cover, not pulling the market data and target numbers close to each other. Market data is what matters.
In some ways, valuations are self-revealing. By following a rigorous process of data collection and adjustment, every valuation writes itself. Owners sometimes feel that their build costs to date justify higher numbers but, if there is no market data to support a higher number, then it is a difficult position to justify. In such cases, there has to be some give and take with insurers to get things on cover – one should set the highest number possible and look for data to increase it later on.
Good market observations for similar cars are super important. A modified car may look great and have many cool mods, but the insurer primarily wants to know what it’s worth to the market. Finding good data is key. Insurers will usually express an opinion on where they would value it and you will likely have an idea of where you see it. My role is to find data to enhance insurer awareness and set the value as high as is reasonable. It is always possible to lift value later, should new data pop up.
Market data does not always have to be UK-based. The global population of many rare cars is so low that all data is relevant as long as it is verified. Although insurers know there is a low likelihood of a claim on a classic car policy, they are usually reluctant to go beyond their comfort zone and owners should also be careful about how they attempt to lift the bar. A zero-stress claim is the goal. Make sure the policy also has salvage rights, as that helps mitigate losses if you can’t get the value where you want it at the outset.