Deciding whether a vehicle should be declared a total loss after an accident is a mixture of science and art, and the amount of visible exterior damage may not be what determines the call.
Whether a vehicle gets hit by another, runs into a tree or gets pelted by hail, an insurance company may declare it a total loss before the cost of repairing damage reaches the vehicle’s market value.
“We use general guidelines and not hard and fast rules. The general guideline is that when you get to 75 to 80 percent of the value, you have to think about it as a total,” said Dave Smith, a claims manager for State Farm, the nation’s largest auto insurer, in the Chicago area.
“It is very much an economic decision. The cost of repair parts and labor is definitely going to influence that,” Smith said, and the decision hinges on several variables.
As vehicles age and their value declines, they become more likely total candidates because the cost of labor is as high as on newer vehicles that are worth more, and parts may be just as expensive.
Progressive Auto Insurance says the likelihood of a 2002 or 2003 model being written off after an accident is 4.3 percent, and for a 1992 vehicle it is 18.8 percent. CCC Information Services, a Chicago company that provides data and technology for the insurance industry, estimates 3.5 million vehicles are totaled annually in the U.S.
Brand and vehicle design also play roles. Body parts cost more for a Mercedes-Benz than a Mercury and aluminum costs more than steel, but exterior damage may not be the reason a vehicle is written off.
A bent frame that can’t be straightened or interior damage from deploying air bags may tip the scales toward a total.
“Air-bag replacement is going to be a key factor in deciding when a vehicle is going to be totaled,” said John Eager, senior director of claims services for the Des Plaines-based National Association of Independent Insurers.
A 2000 association analysis of accident damage said the average repair cost for vehicles with air-bag deployments was $8,219 versus $2,177 for vehicles without.
Air bags and related hardware were only part of the additional cost. For example, the association said air-bag modules ranged from $356 for the driver side in a 1996 Subaru Legacy to $1,762 for the passenger side in a 1996 Lexus ES300.
On vehicles with dual front air bags (required on all models since 1999 ), the steering wheel and passenger side of the dashboard need replacement or repair after deployment. Air bags deploy with such force that they also can damage the windshield, sunroofs and stereo speakers.
Assessing the cost of replacement parts and labor is straightforward, but determining a vehicle’s market value is open to interpretation and often a bone of contention between the insurer and the insured.
Illinois insurance regulations require that insurers consult used-car price guides or pricing services to determine market (or retail) values but do not specify which ones.
As is typical of the used-car business, insurance companies consider the engine, transmission, other major features, age, mileage and overall condition of the vehicle in setting a market value.
Ultimately, it is a judgment call.
“It is a human view of the car,” Smith said, adding that it is based on data from the used-car market. “The owner may have a less than objective view of the car, an emotional attachment.”
Under Illinois insurance regulations (explained on the Department of Insurance Web site, www.state.il.us/ins), if the owner thinks he has been low-balled by the insurer, he can hire an appraiser and the insurance company can do the same. If the appraisers disagree, they then hire another used vehicle appraiser to give another opinion. A decision by two of the three is binding on both parties.
If a vehicle is totaled, the insurance company can pay the owner in cash or find a comparable replacement vehicle. That is the insurance company’s choice, but a cash settlement is usual.
Smith says State Farm occasionally will find a similar vehicle for someone who can’t afford to buy one.
State Farm will try to find the same vehicle and arrange to finance it through the same lender, essentially continuing the status quo for the owner.
If the consumer buys a replacement vehicle within 30 days of receiving a cash settlement, the insurer has to pay for transfer and title fees and sales tax up to the value of the totaled vehicle.
However, if the consumer cannot find a comparable vehicle for the amount of the settlement, he can go back to the insurance company, which can pay the difference, find another vehicle or take the damaged vehicle through the appraisal.
When a vehicle is totaled, some money may go from the insured to the insurer.
Totaled vehicles are claimed under collision or comprehensive coverage, and the usual deductibles apply. If the deductible is $500, it comes off the top.
Without collision and comprehensive, a consumer would not be covered by his own insurance company.
If another party were at fault, the consumer would have to try to collect from the other person’s insurance company.
Care taken with title, condition
When a claim’s adjuster pores over a vehicle that may be totaled, he isn’t assessing damage only from the most recent accident. He also looks for damage from previous events, such as a dent caused by another vehicle or backing into a lamppost.
If the vehicle is totaled, the unrepaired damage is subtracted from the market value, and the insurance company likely will assess a second deductible because it was caused by a separate event.
In addition, in Illinois the insurer can deduct up to $500 for wear and tear, missing parts and rust. But such deductions must be spelled out.
The consumer’s financial obligations still may not be over. If there is a loan or lease on a totaled vehicle, the owner has the responsibility to pay it off.
If an Illinois-registered vehicle eight years or newer is totaled, the consumer cannot keep it unless it was written off due to hail damage. Instead, the insurance company takes possession of it, sells it at a salvage auction and keeps the proceeds.
“The reason for that is to not put these titles on the street as hot property,” said Dale Emerson of the Illinois Department of Insurance.
The vehicle may have little value, but the title for a car such as a Chevrolet Corvette can be altered to fit a stolen model.
In the case of hail damage, the consumer can keep a totaled car regardless of its age. The insurance company will pay the consumer the value of the car, less the deductible and its salvage value, and the consumer can drive the car or sell it–pock marks and all–with a title that labels it as salvaged.
Having a salvaged vehicle could reduce its value.
Emerson adds another caveat on a hail-damaged vehicle: “The insurance company probably will ask that the owner remove collision and comprehensive coverage because it has already declared it a total loss.”
Though insurance companies must sell totaled vehicles to salvage companies, the vehicles do not have to be broken down into parts.
Salvage buyers can rebuild and sell the vehicles, and in Illinois the title must be labeled “RV” for rebuilt vehicle.
However, a vehicle totaled in Illinois can be repaired, sold and issued a new title in states that don’t have the same requirements. Eventually, that vehicle could wind up back in Illinois with no record of it having been a total on the title.
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What it’s worth
Before a car is declared totaled, its market value must be established. Options added to the car or lower than expected mileage can boost its value, just as dings in the paint can detract from it. The following is a list of adjustments made CCC Information Services to a 1995 Saturn SC2 coupe that was totaled.
%% Options/additions Value
Low mileage $262
Power window $35
Power locks $35
Cruise control $35
Leather seats $140
Keyless entry $53
Power glass roof $211
Alloy wheels $70
Condition Change
Paint chips, fading -$55
Dents, dings -$165
Glass scratches -$34
%% These additions and adjustments are added to the value of the car. The car is also compared to similar vehicles in the same market area, as well as other variables, to determine its value.
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IN THE END
What happens to an automobile after it is declared a total loss.
MONDAY IN CARS
