Insights for consumers
It’s important that consumers read their insurance policies and ask their broker questions if anything is unclear.
What happened?
Thomas took out vehicle insurance through a broker when he purchased a new vehicle in 2018. In 2023, a few days after his annual policy renewal, the vehicle was involved in an accident and deemed a total loss by the insurer’s assessor.
The insurer said that where there was a total loss, Thomas was insured for market value and offered him $35,000. Thomas disagreed and said he was insured for an agreed value of $40,000. However, the $40,000 figure was his ‘sum insured’ and was not an agreed value.
The sum insured is an estimate value that the premium is based on. It is also a cap on the total amount of cover available. For instance, if Thomas’s vehicle actually had a market value of $50,000, he would only be paid $40,000.
Thomas complained to FSCL about his broker, saying he’d been misled by them to believe he had an agreed value not a market value policy.
What were the parties’ views?
Thomas said that:
- He always thought that he had an agreed value policy.
- The broker did not explain the difference between market value and agreed value, denying him the opportunity to take out an agreed value policy.
To resolve his complaint Thomas wanted the broker to pay him the $5,000 difference between the market value ($35,000), and what he thought his agreed value was ($40,000).
The broker disagreed and said that the agreed value policy was an optional extension and Thomas never requested or discussed the option with them.
What was FSCL’s view?
It was clear from the policy wording and schedule that Thomas was insured for market value, not an agreed value.
We could see that the broker had discussed Thomas’s policy with him on a regular basis and updated the sum insured each year. We thought that if Thomas had mistakenly thought his sum insured amount ($40,000) was an agreed value, he would have asked the broker why the amount regularly changed. It appeared that Thomas had not read his policy, even though the broker regularly asked him to do this.
On balance we said the broker engaged with Thomas regularly and provided him enough information, that Thomas could reasonably have been expected to understand the difference between agreed and market value policies. Further, we said that Thomas had the opportunity to ask his broker for an agreed value policy if this was what he’d wanted.
We said it wouldn’t be fair to hold the broker liable for a loss of $5,000, based on Thomas’s incorrect assumption that the policy was an agreed value policy.
How was the complaint resolved?
Thomas acknowledged that he should have read the policy. However, he questioned why the sum insured was set at $40,000, when it should have been based on an estimate closer to $35,000, being the market value only a few weeks later when the accident happened. Thomas thought he had been overcharged on his premium.
The broker recognised that if they had insured Thomas’s vehicle under a market value policy with a sum insured of $35,000 instead of $40,000, his premium would have been reduced by $25 per month. The broker apologised to Thomas and offered him a goodwill payment of $500, which he accepted to resolve his complaint.