The demand for used cars has exploded since the start of the pandemic, thanks to a global semiconductor and microchip shortage, which has negatively impacted the availability of new cars. This has also led to soaring prices for second-hand cars, and now insured motorists could be paying the price.<\/p>\n
\u201cToday\u2019s 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. Worse, you could be underinsured, and possibly thousands of rands out of pocket,\u201d said Lizo Mnguni, spokesperson for Old Mutual Insure, adding that the company has noticed a trend of rising second-hand car prices in South Africa, in line with the global phenomenon.<\/p>\n
Mnguni said 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.<\/p>\n
\u201cDemand for new vehicles is now being diverted to pre-owned vehicles. Used cars manufactured in 2020 and 2019 have benefitted the most, experiencing an annualised increase in their trade values of about 1.5%,\u201d said Mnguni. \u201cThere are also issues with the global car supply chain, where availability of second-hand parts are hard to come by.<\/p>\n
“Another trend we are noticing is that car depreciation is a bit lower than what it usually is because the demand is so high.\u201d<\/p>\n
What does this mean for your car insurance?<\/strong><\/p>\n \u201cYour insurance provider will automatically adjust your vehicle premium at your policy\u2019s renewal using your vehicle\u2019s latest price information to determine the new premium,\u201d said Mnguni.<\/p>\n \u201cHowever, given the rising prices of the second-hand car market, some policyholders must be aware that they may actually experience a larger increase in their premium at renewal stage, rather than a decrease, as their vehicle may actually be worth more than what they initially insured it for, or bought it for, given that there has been minimal car depreciation.\u201d<\/p>\n Why the difference in premium?<\/strong><\/p>\n \u201cWhen the insurer calculates your premium, they account for the total loss should you have an accident or experience damage to your vehicle. Fender benders and bumper damage can be costly to repair,\u201d said Mnguni.<\/p>\n \u201cAlso, bumper bashings occur far more frequently on our roads than total write-offs. This is why your premium increases at renewal stage even though your car value normally decreases.\u201d<\/p>\n The cost of labour and cost of vehicle parts are increasing, which also reflects in your premium. In other words, with the scarcity of many makes and models of vehicles, your car may be worth more than it was when you took out insurance, which means you could be underinsured.<\/p>\n \u201cThe onus is on the policyholder to speak to their insurer to ensure that the sum that the vehicle is insured for is accurate. Failing which, you may be in for nasty surprises like finding out you are underinsured, if you get into an accident.\u201d<\/p>\n Below Mnguni shares his top tips to ensure you are not at risk, or in for unpleasant shocks, when purchasing a second-hand car, and factoring in insurance:<\/p>\n \u201cWe urge drivers to look at the specifics of their car and engage with their insurance policy. If in doubt whether or not you may be out of pocket at claims stage, speak to your insurance provider or broker before the unfortunate happens,\u201d said Mnguni.<\/p>\n\n
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