Scrappage plan could boost motor business

The vehicle scrappage scheme could boost premiums but increase challenges over the valuation of total loss vehicles.

Under the £600m scheme, motorists will get £2,000 [£1,000 each from the government and car industry] if they sell their old car or van and buy a new one. Vehicles must be more than 10 years old. The programme starts in mid-May and expires in March next year.

If a policyholder does buy a new car under the scheme, he or she will have to cancel their original motor policy and take another out – which could mean a windfall for insurers.

“Normally, if you cancel a policy halfway through, then you would get short-period rates,” said a spokesman for the ABI. “So if, for example, you pay £1,200 annually and cancel after six months, you don’t get six months back – you might get four.”

Premiums for newer cars might also be more expensive if a policyholder had, say, just third-party cover for his or her older car and wanted to upgrade to fully comprehensive.

Meanwhile, the new scheme has raised questions for the valuation of total loss (write-off) vehicles. At present payouts are based on what a vehicle was worth before the accident. But many total loss cars are worth less than £2,000, so insurers now need to work out how the new programme will affect claims settlements.

David Stubbs, chief executive of ETWB, a company that provides total loss valuations to insurers including Allianz, said more than 30% of the claims that came through his company last year would have qualified for the new scheme.

“We had our first call an hour after the Budget,” he said. “There was a client who’d accepted a value on their vehicle – £500, £600, whatever it was. They wanted to retain the salvage and we said no, because you can’t benefit from both [the insurer payout] and the scheme.”