Drivers of sports cars in the UAE may be drastically underinsured, according to an analysis by Middle East comparison site yallacompare, which used data from policies sold through its car insurance portal.
The website analysed the average insured value of 2014 model cars against the average cost of the same cars at UAE dealerships, and found that many of the second-hand sports cars were being sold for more than their average insured value.
The average insured value for a 2014 Porsche 911 Carrera 4 sits at AED215,000. However, its average cost at second-hand dealerships in the UAE is AED346,000, the site’s data found.
Similarly, the 2014 BMW Z4 sDrive 28i has an average dealership price of AED130,000, despite the car’s average insured value being a much lesser AED108,300.
Other models, such as the 2014 Dodge Challenger R/T, sees less discrepancy between average selling price (AED82,300) at second-hand dealerships and average insured value (AED70,100).
Chief financial officer of yallacompare, Jonathan Rawling, said the findings might be due to the fact that car dealers are over-charging for certain models, such as sports cars, or that customers could be under-insuring their cars.
He said the first explanation can be largely rejected, since assumed asymmetrical information between the buyer and seller will reduce the market value of a car at the point of purchase, explaining the lower insured value of some sports cars.
However, Rawling explains that since many cars, including common SUVs, do not see the same price gap between insured value and selling price, the problem could be that sports car drivers in the UAE are under-insured.
“Either individuals are willingly under-insuring their cars, or insurers are unwilling to agree to the valuations of these cars. Insurers generally accept a range of vehicle valuations. And the valuation impacts the premium payable. Therefore, it’s conceivable that some drivers go to the thin end of the wedge to save a little bit on their insurance policy. However, while insurers are happy to sell policies of a higher premium, they’re even more inclined to insure cars with lower values in order to avoid moral hazard [when a person increases their exposure to risk after being insured],” he said.
“In the case of sports cars, which are already high-risk vehicles, it may be that insurers place downwards pressure on the valuation to mitigate the risk of moral hazard. An insurer obviously doesn’t want to be in the position where a car is insured for more than it is actually worth. That immediately exacerbates the moral hazard risk,” he said.
The difference between average insured value and average cost of common SUVs and saloon cars (considered lower-risk vehicles) at UAE dealerships is much lower when compared to sports cars.
A 2014 Mitsubishi Pajero GLS has an average insured value of AED60,340, and can be bought second-hand for an average of AED59,000. The 2014 Chevrolet Malibu LTZ, which goes for an average of AED50,000 at dealerships, has an almost identical average insured value. The 2014 Jaguar XF 2.0-litre has an average insured value of AED 99,700 and a similar average selling price of AED100,000.
Formerly known as compareit4me, yallacompare is a platform where consumers can compare and buy insurance policies, as well as apply for bank accounts, credit cards, loans, cars and more in nine markets across the MENA region.
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