In a prior article, I explained how insurance carriers use statistical database companies to determine fair market settlement offers. I also stated that there are three major database companies who are authorized to provide such a service. However, prior to a database systems approval, the company must file an application to justify the methodology of their system in determining total loss valuations. At the present time, most states appear to accept the same database methodology for determining total loss settlement valuations.
Each state may approve one or more methods to determine a total loss settlement offer. Using New York as an example, one could point to five methods, only one of which is a straight database system. Connecticut has several methods available, and further requires the total loss settlement be based on a blended value from at least two approved sources. Rhode Island has one method only: NADA values.
As previously stated, a database valuation company must first be approved by a state prior to its usage for valuation settlements. Questions that come to mind are: once approved, who ensures that the same methodology is used; does this include data presentation, as the format can be confusing; how often do states revisit what the database is presenting; and who is approving changes that occur? One of the biggest unknowns is the question of re-certification of a database system: does it happen and how often?
Reviewing databased valuation reports used by several insurance companies; it is hard to imagine how the consumer can reach a comfortable level of understanding. Not only does each database provider use a different method of data presentation, but often conclusions are implied with minimal if any support. Those not familiar with these reports and the presentation methods used can be both over whelmed and confused.
One database company makes the assumption that categorizing options as standard equipment is at times an acceptable practice. Let us assume the owner in this example knows the vehicle, has driven it, owned it for some time, but may not recall the standard equipment versus the purchased option. In the valuation report this database company reflects the optional moon roof as standard equipment. The vehicle owner who paid extra for the option may not notice this or question this treatment. This at best appears to be deceptive and one that takes advantage of the consumer. Ask yourself, do you recall what was standard equipment or a purchased option on the vehicle you drive?
Who decided that a purchased option is now standard equipment? Was this assumption part of the database company’s initial approval process or is this “creativity”? The explanation I have received; “Most of those vehicles (type and model) were bought with that option so we consider it standard equipment”. My response”: So the moon roof option that cost $950 has no additional residual value; is that your answer? I mention this example in particular as the insurance carrier, when questioned, states that the option adds no value, based on the database company’s determination. While the logic of such a comment is difficult to understand, the carrier will state that the database provider is an approved valuation source. I find it hard to believe that this logic was approved by any state when the database system information was originally provided. Perhaps this type of question was never asked or maybe this is a creative view? In a recent negotiation directly with a carrier, the valuation of the options previously stated as “standard equipment” resulted in an 18% increase in the fair value settlement.
This same database provider makes an assumption called a “comparable vehicle adjustment”. This is supposed to reflect the condition of the loss vehicle as compared to other vehicles. The first explanation I received was this adjustment was dealer readiness for sale; then it was a value reduction based on repairs that are needed on the loss vehicle. The effect of the adjustment is to reduce (average down) the comparable vehicle prices, hence reducing the base offer. This carrier then again, in a separate section of the valuation report, reduces the settlement offer with a direct charge to the loss vehicle for appraiser noted damages or conditioning. The carrier is convinced on the validity of this adjustment. Common sense does not support the carrier’s conclusion.
A second valuation company has eliminated its tabular comparison columns. In the past one would see what was considered standard equipment or an option on a comparative vehicles schedule. Now you are provided a paragraph of supposed like vehicles which may or may not actually be the same. Close review has shown a mix of models, which will usually result in a decrease in the average value as initially presented. Price adjustments based on options and or model differences are buried in an explanatory paragraph with no detail. One cannot see or comment on what is not shown or if all the option differences have been considered.
The average consumer reviewing a database report by this company can only wonder how the average value of the loss vehicle was computed. However, this company does show amounts added for purchased options in the settlement report, and includes a listing of original vehicle standard equipment.
All comparative vehicle information is presented in paragraph form with a comment that states: The listing price of vehicles is based on a discount percentage or sales assumption. In summary, this company has assumed that all listed vehicles will have a standard sales price adjustment. There is no stated amount or percentage adjustment, just a comment. It further assumes any adjustment they have made for options or model should be trusted. Why then did my negotiation services result in a fair market settlement increase of 14.8%?
The third database valuation company has a unique approach to determining fair market settlements. This company uses a ratio approach to some predetermined condition they consider typical based on the age and mileage of the loss vehicle. Based on this ratio, a standard for valuation is assumed and is used to justify condition adjustments.
Unfortunately, when a vehicle does not receive a rating of “good” in a category, it results in a decrease in the predetermined ratio. However, there is no way to measure what a good or fair rating by category means, or the impact to the weighted average of the overall vehicle. This ratio reduction is then used to reduce the supposed average vehicle value and is referred to as a “condition adjustment”. For valuation or adjustment purposes, this database company assumes good as the typical vehicle measurement. What is “good”? For that matter what is “poor” or “exceptional”?
This company does provide some tabular information for comparison purposes, however, no detail. The adjustments appear as “vehicle configuration adjustment, mileage and equipment”. With limited or no information, it is difficult to evaluate on a comparative basis.
The last comment refers to what appears as “projected sold adjustment”. The only consistency here is that the percentage used is the same for every comparative vehicle, regardless of price. Most recently this was noted as a 12.9% downward adjustment. The effect of this adjustment further reduces the average vehicle price, thus reducing the settlement offer. Also noted in this recent report; of 8 listed comparable vehicles, only 3 were the same model. Through negotiation the settlement for this vehicle was increased by 22% when using only comparable vehicles.
Worth noting is that condition adjustments are used in one form or other by all the database providers. The primary source for condition comments and price reductions is an inspection of the vehicle by the insurance company appraiser. It is, however, interesting that the financial impact of a similar comment under each database system can result in a different price adjustment, and may further vary by insurance carrier. Therefore, it not only contains an element of personal bias and opinion by the appraiser but the same condition or comment appears to have a different weight factor in the methodology used by the various database providers and the insurers they service.
In summary, what do we have? Three major database companies who provide information for the purpose of fair market valuation settlements. These reports are supposed to be given to the insured as support for the carriers settlement offer. What is common are unsupported assumptions, reports that without substantial experience in presentation and content are confusing at best, that on a consistent basis appear to undervalue total loss vehicles and that appear to present data with some assumed or biased factor. The financial winner: the insurance carrier: the loser, the consumer.
The author of this article is a member of the Long Island Auto Body Repairmen’s Association. He specializes in helping vehicle owners obtain fair market settlement offers for their totaled vehicles. He can be reached by email at John@ZBLLC.net or by calling 516-364-0713.