Volkswagen emissions scandal causes potential insurance problems

Published: September 22, 2015

Updated: July 24, 2018

Author: Luke Jones

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Volkswagen AG, the world’s largest automobile manufacturer is mired in controversy at the moment as the company revealed that 11 million of its vehicles around the world are fitted with a software that is currently being investigated in the United States.

The Environmental Protection Agency (EPA) in the USA found that VW rigged software onto its vehicles to reveal low emissions when being tested. Amazingly Volkswagen admitted to this, which means 11 million of its diesel powered vehicles have the software that lowers emissions for tests but then bumps them back up afterwards.

When the software switches off when not being tested the vehicle will deliver more power and push out emissions 40 times above the legal pollution level.

The company is now scrambling to limit the damage caused by this and has set aside 6.8 billion euros to clear up the problems. However, throwing money at the situation is unlikely to make it go away as stocks are tumbling and the EPA says it could in theory fine VW up to $18 billion. On top of that, other countries such as South Korea and France have said they will start their own investigations into Volkswagen and more nations are likely to follow.

Other car companies such as SG Daimler (Mercedes Benz), Renault, and BMW are all seeing stocks slide as investors think they could be implicated next, although there is no evidence that any of those companies are responsible of wrong doing.

There has been no suggestion that Volkswagen will recall the vehicles, so where does that leave those who are driving them. Are the cars now illegal because of their emissions and could this have an effect on insuring those vehicles in the future?

Many auto insurance policies offer better premiums for cars with a small emission footprint, so could owners of the Volkswagen cars pushing out 40 time the legal limit now see premiums rise? Diesel cars are also more expensive to repair and early predictions suggest there could be a 5% rise in Physical Damage premiums as a result of this controversy. The Volkswagen Jetta was the 15th best-selling car in Canada during the first half of 2015, but now the company has halted sales of several diesel models.

"Volkswagen Canada has issued a stop-sale order to our dealers for all of the affected vehicles pending resolution of this matter," company spokesperson Thomas Tetzlaff said.