Used car owners could be £3000 out of pocket if their car is written off

The values of some second-hand cars have gone up by as much as 20% in the past couple of years, and now that they’re coming down again, owners could be left thousands of pounds out of pocket if their car is stolen or damaged in an accident. 

ALA Insurance examined the data for used cars first registered in 2018, comparing their average values in the years from 2019 to 2022. The data showed that the cost of many cars had gone up between 2020 and 2022, with the average price of Mazdas going up the most – by £3295, or 20%.

While this is great news for owners, it’s not if they have to make a claim for the car on their insurance. That’s because, unless you have GAP insurance, your insurer will pay you only the current market value for it, and with used car prices now declining, that could be far less than the purchase price.  

The phenomenon is being called ‘reverse depreciation’ and, according to ALA, the top five brands that are being hit by it are Mazda, Mercedes, Skoda, Toyota and Ford. Although Mercedes values increased by only 9% between 2020 and 2022, higher purchase prices mean buyers could lose up to £2458. 

Skoda, Toyota and Ford also saw high reverse depreciation figures during this period, with used car prices increasing on average by £2261, £2214 and £2003 respectively. Honda, Porsche, Nissan, Alfa Romeo and Peugeot also saw reverse depreciation figures of more than £1000.

ALA managing director Simon England says car buyers can protect the price you originally paid for their vehicle by purchasing GAP insurance. “It means if your vehicle is written off or stolen, it will pay the difference between the insurance settlement and the original price paid for the vehicle,” he explained. 

The ALA research comes just after a warning from the Financial Conduct Authority (FCA) for insurers not to undervalue cars when settling claims. It has seen evidence that some consumers whose cars have been written off are being offered a price that is lower than the vehicle’s fair market value. In some cases, claims staff are only increasing that offer to the fair market price when a consumer complains.   

FCA executive director, consumers and competition Sheldon Mills said: “When making an insurance claim, people shouldn’t need to question whether they are being offered the right amount for their written-off car or other goods that they need to replace. 

“Insurance firms should offer settlements at the fair market value. This is especially important now as people struggling with the cost of living will be hit in the pocket at precisely the time they can ill-afford it.” 

Customers who think their claim might have been undervalued can complain to their insurer and then to the Financial Ombudsman if their complaint is not resolved. 

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