The insurance watchdog says problems with car insurance are the number one complaint received in the past year.

Vehicle complaints make up 23 percent of all complaints received by the Insurance & Financial Services Ombudsman's Scheme.

One of the main issues was the reduction of the car's value at the time of policy renewal.

Auckland-based Rawiri* had his car damaged in the Auckland Anniversary floods earlier this year.

He thought he would be fully covered, as he had arranged car insurance with an agreed value of $19,000 just a year earlier.

However, when Rawiri made his insurance claim, the insurer offered him only $14,000, after deduction of a $400 policy excess.

The reduction was because his latest policy renewal documents, sent to him a month before the flood, had listed his car's agreed value as $14,400 - a decrease of 24 percent on the year before.

As the amount was below the market value of the car, Rawiri complained to the IFSO Scheme, saying the decreased agreed value had not been properly communicated to him.

After an investigation, the Insurance & Financial Services Ombudsman found that price reduction was unusual.

"When consumers take out comprehensive vehicle insurance, if their car is written off, the insurer will pay the agreed or market value of the car, depending on the type of policy," Insurance & Financial Services Ombudsman Karen Stevens said.

"As vehicles get older and depreciate, insurers normally reduce their agreed value at the time of policy renewal, however not usually as much as 24 percent."

She said the law requires unusual clauses to be brought fairly to the notice of the insured.

"Where something like the agreed value is reduced as substantially as 24 percent, we would expect an insurer to discuss this with their customer and make sure they're aware of the change.

"In Rawiri's case, the insurer hadn't included any warning in its cover letter or email alerting to the decrease, and the agreed value was not highlighted in any way."

After the IFSO Scheme's investigation, the insurer offered to settle the claim by paying Rawiri $17,500.

'Don't sit and forget' - Insurance Council

Stevens said that, generally, it was up to the insured person to read and understand the terms and conditions of any policy.

"What we advise all consumers to do is to look at their renewal documentation every year and to make sure that they're happy with whatever reduction has been made.

"People have to keep an eye on what that devaluation value is, because if they're not happy, the time to say it is before an accident happens, not after."

She said insurers should clearly notify their customers if there was an unusual reduction in the agreed value of a vehicle.

"The obligation is on the insurer to make sure that they communicate that really clearly with the customer.

"But equally the customer really should be reading that renewal document. Then they can raise it if there is an issue."

Insurance Council of New Zealand (ICNZ) chief executive Tim Grafton said customers should get a notice from their insurer at least a month before the renewal policy came into effect.

"And that's the time for someone to look at the terms and conditions and, for example, the value of the motor vehicle that they have insured, and to decide how much they want to insure it for."

People should take their time to read through the documentation, he said.

"It is important for people, whether it's their house insurance or their motor vehicle insurance or their contents insurance, that they just set time aside to really think whether [the insurance policy] is up to date.

"Do not sit and forget. We don't want to get into situations where people are not aware of significant changes in their policy and the insurer should advise them if that is proposed."

Customers with a problem with an insurer can make a complaint to the IFSO Scheme at www.ifso.nz or by calling 0800 888 202.

* name changed to protect privacy

This story was originally posted on RNZ News