How insurers decide to write-off your car

If you’ve ever been involved in a car crash and were told your vehicle may be written-off – have you ever wondered who makes that call and how?

Ernest North, co-founder of Naked Insurance, says two practical considerations often shape the outcome.

“Your convenience of how long it would take to repair that car and your comfort or discomfort if those repairs are not to standard are part of the equation,” North says.

If repair costs – including parts and labour – approach or exceed the insured value, the vehicle is typically written off.

Speaking on the SAfm MarketUpdate by Moneyweb last week, North gave some insights on the decision made by insurers.

Listen: Understanding car insurance write-offs

Parts, popularity, and depreciation

A common denominator in write-off decisions is the age and popularity of the vehicle. North says insurers look at “how fast parts of the car can be gotten if the car is popular and how much it will cost to get those parts”.

Vehicles that are widely sold in South Africa, such as models from Volkswagen, are generally easier and cheaper to repair because parts are readily available.

Read/Listen: Understanding vehicle insurance against accidents

By contrast, sourcing parts for less common or luxury vehicles can be expensive and time consuming. Where repairs become costly and prolonged, the likelihood of a write-off increases.

Data from Prime Meridian Direct indicates that cars typically lose around 20% of their value in the first year after leaving the dealership.

Luxury vehicles can lose between 50% and 60% of their value over a five-year period. As the insured value declines, the threshold at which repairs become uneconomical is reached sooner.

What happens if the car is financed

If the vehicle is financed, the insurer first settles the outstanding loan with the bank.

“Then you will get the rest if there is money left,” North says. However, rapid depreciation means there is often no surplus. In many cases, the outstanding loan exceeds the insured value, particularly in the early years of ownership. This leaves motorists exposed to a shortfall.

Read: Why you should increase your car insurance co-payment

“What we recommend is that people supplement their comprehensive insurance policy with a credit shortfall policy,” he says. This cover applies in a write-off or theft scenario and pays the difference in the comprehensive payout and the value of the loan.

Buying back a written-off vehicle

Policyholders are sometimes given the option to repurchase a written-off vehicle at salvage value. North advises caution. “It’s something that I recommend people not consider seriously in most cases,” he says.

Assessors base write-off decisions on detailed inspections, including hidden structural damage.

“If your insurer made the decision to write off a car, in very few cases do I think that it is worth buying back that car.”

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A write-off is a financial calculation informed by repair costs, depreciation, and risk assessment. For consumers, the key risk often lies in the financing structure rather than the accident itself. Understanding how insurers assess damage and ensuring appropriate cover, including credit shortfall protection, can limit unexpected liabilities.

* Phenyo Selinda is a Moneyweb intern.