A Total Loss

When it comes to total loss auto claims, many insurers pay the actual purchase price for replacement which could result in some serious money being “left on the table”. What do insurers do when they have a total loss claim? Most claims managers or adjusters contact a car dealership and find the actual replacement price for the vehicle and its contents. File closed.

Total losses are an issue for claims managers for several reasons. One, there are more of them these days because of expensive safety equipment and engineering designs, such as airbags and crumple zones. For all private sector auto insurance provinces, total comprehensive and collision auto insurance claims paid in 2000 (latest year available) came to $1.57 billion. About 12% of those claims involved total losses, yet they accounted for a whopping 27% of all collision claims costs. This amounts to about $400 million, according to the Vehicle Information Centre of Canada (VICC), and this figure does not even include total losses resulting from theft.

Another issue in total loss claims is the need to get customers back in their cars quickly. Claims managers are concerned about replacement values, storage costs and service delays. In particular, they talk about “lapse time” and “loss-of-use expenditures.” Clearly, it is a competitive market out there.

This is particularly true in claims involving the “43r endorsement”. The 43r, or waiver of depreciation, endorsement is used for cars three years old or newer. It means that policyholders who experience a total loss due to theft or accident will be reimbursed for the full replacement value, not the car’s depreciated value. Call it a risk protection plan for new cars.

Insurers estimate that the 43r endorsement is used in approximately 10% of total loss claims. While this constitutes a relatively small number, it can stir up a hornet’s nest of problems. Perhaps insurers and claims managers can take matters into their own hands to cut costs and improve service. When it comes to settling a total loss involving a 43r endorsement, insurers have three choices. They can pay:

The actual purchase price of the vehicle and its equipment;

The manufacturer’s suggested list price on the original date of purchase;

The cost of replacing the car with a new one of the same make and model, similarly equipped.

In the vast majority of cases, adjusters settle using the first option. But there are alternatives to consider. New methods of research, processing and technology may make the third option – finding cars of the same make and model at reasonable prices – more attractive.

Many people, including customers, are using the Internet to research information on vehicle values. But often what they get are inflated values and dealer mark-ups. Most insurers and consumers do not have access to true dealer cost prices, mark-up rates, all current cash incentives and rebates. So they pay more than they should. They look at the cost up, not the list down.

43r.ca is an Internet-based service that uses the third option – finding cars of the same make and model at reasonable prices. Through CarCostCanada and its 15,000 paid members, it provides more information to insurers and appraisers to get closer to the real value of a replacement car.

Through this method, it is estimated that insurers can save on average about $1,300 per claim, based on a sample of at least ten claims. Over the past year and a half, testing with insurers, such as Allstate, CAA, HB Group, ING Canada, RBC Insurance and Wawanesa, has demonstrated these average reductions, with some cost savings exceeding $3,000. Working with these companies on 181 live claims, 43r.ca’s method of handling total loss claims resulted in savings of more than $240,000. If you add it up, the potential savings are in the millions of dollars for insurance companies.

A total loss is probably the worst kind of claim a policyholder can submit. Most people have already been through a crisis and are looking to their insurers for a fair and speedy solution. If they have paid an added premium for an endorsement to protect the value of their new car, clients expect an even better solution. That solution may just be at the claim adjuster’s fingertips, adding one more piece to the claims cost containment puzzle.

The Wired World welcomes your feedback. Contact us, via E-mail at <vikki@canadianunderwriter.ca”>b>vikki@canadianunderwriter.ca