What is a category D insurance write-off, and should you buy one?
Thousands of cars which have been written off by insurance companies are finding their way back on to the second-hand market every year – and it is all completely legal. They can save buyers hundreds – if not thousands – of pounds, but consumer experts warn that they can also be a source of trouble down the line.
Write-offs which reappear in this way are known as Category D cars under a voluntary code of practice signed by various organisations, including insurance companies, salvage and repair agencies and the police. The agreement puts accident-damaged cars into one of four categories. Category D is for the most lightly damaged cars, or those which were stolen and recovered after the owner had been paid by the insurance company.
The official description of a Category D car is one that has suffered accident damage that would cost less to repair than its value. But why would an insurer write off a perfectly repairable car? Ironically, according to motor trade experts, the insurance company can cut its losses this way.
Imagine that a car worth £5,000 is lightly damaged in a minor accident. The insurer may have to pay to have it towed to an approved repairer and stored. It will have to send out an assessor to inspect the damage, and may have to cover the owner’s costs for a hire car. There could also be personal injury expenses.
If the airbags have gone off, replacing them can easily add £2,000 to the repair bill, and features such as seat-belt tensioners or parking sensors will increase it further. With insurers able to claim up to 65 per cent of the car’s value from salvage companies, they can often be in pocket by writing the car off and allowing an independent garage with lower overheads to repair it.
Graham Threlfall, the head of the National Association of Bodyshops, said the increasing focus on safety and luxury in cars is partly to blame. “Ten years ago, if a car was involved in a front-end collision, the damage was confined to the bodywork, but with airbags, belt tensioners and things like self-levelling headlamps, it is much more expensive to repair them now. Insurers are often happy to be rid of the liability,” he said.
The irony, he said, is that without the salvage market, insurance premiums would be more expensive, since insurers would make greater losses on every accident.
Well-repaired Category D cars can be appealing to budget-conscious buyers in the current economic climate, and there are pages of them on the internet. A cursory examination of eBay one afternoon revealed more than 300 available at savings of up to 25% on normal second-hand values.
The worry is that many buyers may not understand what Category D means, and therefore what they are buying. Before putting any vehicle on sale, a dealer should take “all reasonable steps” to check its history, including whether it has been written off or accident-damaged, says the Office of Fair Trading (OFT). This includes conducting a vehicle history check and asking the seller to declare any damage.
But even if this has been done by the book, buyers can still face problems. Some insurance companies which put Category D cars out for salvage refuse to cover them when they have been repaired, the OFT says, although the Association of British Insurers (ABI) claims there is “no empirical evidence to suggest this is widespread”. If a buyer takes a risk and fails to declare that the car was once a write-off, the insurance company would almost certainly refuse to pay out if there was a claim.
The ABI says there has been only a small increase in the number of Category D cars reappearing on the market since 2002, and the average age of them is between eight and nine years. They are recorded on the Motor Insurance Anti-Fraud and Theft Register (MIAFTR) and this information is readily available through companies such as HPI, so there is no reason why sellers or buyers should be caught out, it adds.
But the OFT is sufficiently concerned to have made the regulation of the used-car trade “an enforcement priority”, and recently completed a study into all aspects of it. It found “a high level of consumer complaints” and is now considering whether existing consumer protection legislation is “sufficient and effective”.
For anyone tempted by what appears to be a bargain used car, there’s an old adage that it might possibly be as well to remember: if something looks too good to be true, it usually is.