DATA BASES—WHO IS WATCHING?

BY JOHN A. WALCZUK

Today data bases are used in the evaluation and presentation of many statistical factors and resultant conclusions. Our training has taught us accept the concept that a data base is fair and accurate, as our premise or belief is that the data base itself uses independent sources to arrive at an unbiased conclusion. This reliance in part is based on facts and when used for vehicle valuations is supposed to reflect a representative sample, that is unbiased in selection, and that each provider of data base services is licensed by that state’s insurance department or other government agency.

To the unsuspecting user, the one who is not familiar with the data base systems used by insurance carriers, this concept might be easy to accept. In fact, results presented by the data base systems often do provide a fair amount of accurate information. However, as one becomes familiar with the data base systems used, it often becomes apparent that the completeness or accuracy of the data base is at issue and may not be a fair representation.

One alarming reason for the reduction in the number of shops is the inaccurate use of the data base systems used by the insurance companies. What usually determines a total loss is the comparison of a vehicles’ market value versus the cost to repair. A misstated condition adjustment, or failure to include all vehicle options can result in a lower comparable vehicle and an incorrect valuation being provided by the data base company. With most states using a percentage conversion of vehicle value to repair cost, it is easy to understand how the lower vehicle value contributes to the total loss unit increase or corresponding decrease in repairable vehicles. The result is simple, a reduction in the number of repairable vehicles that directly correlates to the reduction in the auto body shop business.

The bigger and more pressing issue might be who is monitoring these data base systems after a state’s initial approval? Once approved, a data base provider can operate in a state unchecked for a number of years. Such unmonitored operation lends itself to possible misleading modifications that can negatively impact the consumer. That negative impact becomes apparent when consumers are offered total loss settlements that are substantially less than comparable vehicles.

In renewing a driver’s license you often need to submit evidence that your eyesight is acceptable, either at the motor vehicle bureau or by proof of a recent eye exam. The same holds true for the annual vehicle inspection, certifying that your vehicle passes all safety requirements mandated by your state. The same can be said about meeting your states insurance requirement prior to registering a motor vehicle.

It is evident that the consumer has numerous thresholds to adhere to each and every year. The same however, cannot be said without reservation, when one reviews the approved vehicle data base systems used by insurance companies to provide fair market settlement valuations for totaled vehicles.

Previously, I have commented on issues noted with the various data base systems. Specifically, I have mentioned options that are now reported as standard equipment and therefore not adding value to totaled vehicles; adjustments that supposedly represent comparative vehicles that lack detailed support and option differences based on the various models of a vehicle.

Now we will look more deeply into what will be termed price negotiations or what I will call “unsupported deductions”. These unsupported deductions supposedly reflect the trend of price negotiations for vehicles sold or what has been described to me by one insurance carrier as dealer prep costs. Does anyone believe that each of us can negotiate the same selling price or cost of an item or service?

In New York one of the approved methods for total loss valuation specifies that a deduction for documented dealer prep charges may not exceed $100 dollars from the average of retail sales. However, the data base method used by most carriers can often result in a deduction in excess of a $1000 dollars. Depending on the vehicle, I have seen deductions in excess of $2000. Why is there a specified amount noted, but the data base systems are allowed to generate what one might label an arbitrary amount?

By design, one data base company clearly reflects an adjustment captioned “projected sold adjustment”. This adjustment to valuation is supposed to reflect the percentage price difference between the asked and selling price of a vehicle. It is also, by design, supposed to be drawn from a sold sample of thirty such vehicles. What is not clear is how this calculation and resultant adjustment is reflective of what we will call the local market area. As most states consider the local market area not to exceed one hundred miles, why should sales of vehicles that might be a thousand or more miles away be included in this sample and therefore impact the calculation? The concept of projected sold adjustment might on the surface seem reasonable, but economies and trends can be vastly different by regions in our country. (Is the resale value of an all-wheel drive vehicle as important in New York State as it is in Florida? How about a convertible in Maine versus Arizona?) As data base samples usually are drawn from a radius distance of one hundred miles from an insured address, why should such an adjustment be allowed if it is not drawn from that same one hundred mile radius?

A different data base company has a stated deduction for each compared vehicle. What catches ones attention is that each compared vehicle can vary widely based on mileage or options and possibly year. So then why should each vehicle reflect the same decrease in selling value? One can also question why a vehicle that is located at a dealership of the same make, be adjusted in the same manner as the one located at a used car lot.

Consumers are led to believe that dealer vehicles are pre-certified, continue under the manufacturer’s warranty and have no history of prior damage. Conversely, used car dealer’s purchase many of their vehicles at auction, and in many cases are those with prior accident damage and cannot be sold at a dealership as pre-certified. A fact, most dealerships sell their trade–in vehicles with prior damage at auction. So then, why should the selling price of vehicles that are compared from various sources be reduced in the same manner and amount? What is this arbitrary deduction and why is it allowed?

The third and last data base company now shows compared vehicles in a paragraph form, and this was not always their presentation method. Trying to confirm similarities can be a challenge. The paragraphs can be from listings prepared by others and options may not appear in the same order. The reference source for the compared vehicle might be a used car dealer, a vehicle dealership or labeled leading internet used car site. Regardless of the source we again see reference to an adjustment labeled “adjusted to account for typical negotiation”. This data base provider does not show the amount of the actual adjustment. Doing the math, the adjustment turns out to be a consistent percentage regardless of the vehicle listing source. There is no reference source for the adjustment, only a reduction in the vehicle value. What is typical negotiation? Here again we see what might be true, cannot be challenged as there is no basis for the adjustment, and when challenged, is met with an insurance carrier response of “the data base provider is licensed and approved by the state”. What does that actually mean?

So here we are. The data base company is licensed and approved by the state. Obviously each state has a full understanding of the methodology used by the data base companies, has approved the way data is presented and interpreted, and has agreed to any change that might distort information. Why then are the valuation results often questionable and responses from carriers almost always couched in “approved and licensed by the state”? Have you ever heard the term plausible deniability?

What did the state or any state actually approve? A recent client went so far as to discuss with his state senator a total loss valuation he received and asked if it was in compliance with New York State regulations. The response was surprising in that he stated, “no”. In this example, it was obvious that the way the data base system was being used did not reflect the elected representatives understanding. My review concluded the data base appeared to be in compliance, but like other data base presentations had an unsupported deduction based on that particular system.

I have questioned the unsupported adjustments that are common place numerous times. I have asked the regulatory organizations in several states to require the insurance carrier or its data base supplier to provide detailed information showing how these deductions are derived. The result of these requests has not been positive and I have never received direct factual information to support what is being deducted in this arbitrary manner. Blatant acceptance of the carrier’s methods that reduce settlements appears to be the norm.

So who is watching the data base systems? I have to conclude that the consumer is at the mercy of a system that appears to write its own rules to the benefit of the insurance carrier.

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