How to avoid underinsuring your motorhome or campervan

If you wanted to buy a brand-new motorhome or campervan today, you would struggle. Not only did the production of new vehicles drop during the COVID-19 pandemic, but a shortage of semi-conductors is restricting the numbers currently coming off the assembly lines. As a result, intense demand has pushed up the price of second-hand motorhomes and campervans. Remarkably, some used models are fetching more than they costed when new.

While this is good news for owners in one respect – their vehicles are depreciating less or even becoming more valuable – there is one major pitfall: insurance. Because vehicles can gain thousands in value in a matter of months, owners face the very real risk of being underinsured.

This is a particular problem for owners of self-drive hire vehicles. In recent times, the value of motorhome and campervan fleets have increased significantly. However, should any of the fleet be stolen, damaged, or written-off, it’s likely that the sum insured will not reflect the current market value of the vehicle.

Premiums vs sum insured

It can be tempting to insure a vehicle for a lower sum than it’s worth as your premiums are likely to be lower. However, this is always a false economy and can lead to many headaches.

With self-drive hire policies, if your motorhome or campervan is written off, typically the insurer can decide to pay either the market value, or the sum insured, whichever is lower.  If the policy states it will settle on a market value basis and the sum insured is dramatically lower, the insurer might feel you have misrepresented the risk, leading to them asking for addition premium or, in the worst-case scenario, voiding the policy altogether. It is therefore crucial the sum insured is realistic, as you might be left uninsured if the insurer feels you have deliberately misled them.

An example of an underinsured motorhome

Let’s assume you bought a low-mileage Chausson 718 XLB 4-berth motorhome this year and added it to your self-drive hire fleet.

The motorhome costs you £64,995, so you insure it for this amount. Six months later, you discover that similar models are selling for £70,000. Shortly after this point, one of your hirers has an accident and the vehicle is written off.

Unfortunately, as the sum insured was set at £64,995 at the time of the claim, you now face having to negotiate a settlement at market value with your insurer. Your insurer may only agree to a settlement of the value of the sum insured, leaving you to cover the gap between this and the cost of a replacement vehicle. Worse, the settlement process may take weeks or even months. This will mean you’ll lose out on rental income due to the delay in getting a replacement vehicle. If this happens during the busiest periods, it can make a significant dent in your bottom line.

Had the insurer been updated with the correct market value, the settlement process would be relatively simple, and they would be able to process your claim quickly.

Renewal problems

Another issue with underinsuring your vehicle can occur when you renew your policy after a claim. For example, if one of your self-drive clients damages a body panel and you make a claim, your insurer is likely to cover the cost of the repair. However, if your vehicle is only insured for £65,000 and its market value is £70,000 at the time of renewal, your insurer will insist that the vehicle is insured for £70,000. As a result, your premiums will increase.

Tips for avoiding underinsurance

In the current climate, underinsurance is a growing problem for self-dire hire motorhome and campervan businesses. Because many vehicles are growing in value rather than depreciating, you can end up being underinsured in a matter of months after taking out your policy.

While current market trends continue, it’s a wise idea to keep an eye on second-hand prices for vehicles comparable to your own. There are lots of sites online that advertise motorhomes and campervans for sale, so check them out every few months and look for vehicles of the same make and specification, along with a similar mileage and age to your own.

If you notice that prices for vehicles like yours have gone up, the best thing to do is to contact your insurer and ask to change the sum insured. Often your premiums won’t increase for a relatively minor change and it’s a much better option than not having sufficient self-drive hire insurance to cover a replacement vehicle – or facing weeks without income while you negotiate your claim.

How to update your sum insured

Alan Boswell Group self-drive hire insurance policyholders can update their cover by getting in touch with our team. Simply call us on 01603 649744 and we will be happy to help.