Don't fall for this sneaky financial swindle

Drivers: watch out! Car insurance firms will often use this trick to reject a valid claim. Here's how to fight back.

Insurers are notorious for searching for any loophole, no matter how small, which will allow them to reject otherwise valid claims. For example, they look to the slightest change to an insured item as an excuse to invalidate your contract and renege on a payout.

The latest nasty trick of car insurers is to argue that a car has been 'fundamentally modified' by the installation of a modern convenience such as a sat-nav (satellite-navigation instrument) or a DVD player.

The insurer's argument is usually that:

a) an additional item makes the car much more valuable, which calls for a higher premium; or

b) a new gadget makes the car a more attractive target for opportunistic thieves.

The big question is: should a substantial claim (such as a total loss due to theft, etc.) be turned down because of a relatively minor modification to a vehicle?

Bear in mind that the vehicle's specifications haven't been modified, so its performance and safety haven't been altered in any way. Hence, the above scenario is very different to souping up a vehicle by 'modding' it, as boy racers often do.

If your insurer rejects your claim for this reason, make a complaint and appeal the decision.

What to do next?

If your insurer - or indeed, any financial firm - fails to listen to your complaint, then you have the option of having the dispute heard by the Financial Ombudsman Service (FOS). If your grievance isn't being taken seriously, and you've exhausted a firm's complaints procedure, then you can ask for a 'deadlock letter' with which you can approach the FOS.

Thankfully, the FOS takes a dim view of the insurers' argument that installation of a sat-nav or DVD player amount to modification. It argues that these are simple additions and, consequently, usually orders insurers to shut up and pay up.

A threat is often enough

The beauty of the regulatory complaints process is that, often, you don't actually need to go to the FOS - you just need to threaten to do so.

Recently, a friend asked for my help in dealing with her motor insurer. While stationary at traffic lights, her car was hit from behind by a careless taxi driver. As the accident was entirely the other driver's fault, my friend looked to her motor insurer to restore her to the financial position she was in before the accident.

This is when the fun began. Her insurer deemed her one-year-old car 'beyond economic repair' and decided to write it off, offering a settlement of £7,000. My friend rejected this initial 'low ball' offer, as she knew that a replacement car of similar condition and mileage would cost roughly £9,000.

Even though she was blameless, my friend stood to end up £2,000 out of pocket. This is because her insurer simply wanted her to go away with as little fuss and money as possible. However, she's a determined lady, so she refused to give up!

With my help, my friend searched online and in local newspapers for cars of a similar make, model and mileage. In addition, she got a valuation from the car-buyer's bible, Glass's Guide. Armed with these valuations, she went back to her insurer and demanded a higher payout.

Her insurer then raised its offer, but was still well short of her market valuation. Hence, I told her to demand a deadlock letter so that she could make a formal complaint to the Financial Ombudsman Service.

At this point, her insurer started taking her seriously, as a complaint to the FOS would cost it at least £400. Also, it knew that the FOS uses the motor industry's own trade guidelines when valuing cars -- and that these would produce a figure much closer to my friend's £9,000 estimate.

In the end, her insurer backed down and offered her a settlement close enough to £9,000 for her to drop her complaint and close her case. After all, the FOS is having yet another busy year, so it has a big backlog of cases - and my friend didn't want to wait six months for a ruling (which is probably how long it would have taken). Needless to say, my friend won't be buying motor insurance from this firm ever again, so it's lost another honest customer.

For anyone whose car has been written off, this must be a wearily familiar tale. Indeed, there's a near-identical story on the FOS website. Therefore, isn't it high time that the FSA ordered car insurers to offer proper valuations and write-off settlements, instead of giving honest customers the run-around?

Summing up

In summary, if an insurer takes a hard line when you make a claim, then argue your case carefully but firmly, backed by solid supporting evidence. If it still won't play ball, then demand a deadlock letter and warn that you will be making a formal complaint to the Financial Ombudsman Service. Often, this is enough to make an insurer see the error of its ways!

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