Insurance companies offering motor vehicle coverage often use one of three computerized database systems. These database systems are used to calculate and justify a total loss settlement offer. The three most widely used computerized database systems can provide settlement offers that may differ substantially for the same vehicle. This appears to result from the defined specifications and/or criteria that are used by the different carriers in determining a total loss settlement. Regardless of the database system used, the vehicle owner will usually receive a settlement offer that can be as much as 35 % below (what I will refer to as a reasonable settlement offer or fair market value), as defined under Regulation 64.
Review of the computer generated offer may also differ based on the individual adjuster decisions, such as vehicle condition comments. Under close inspection the individual adjuster’s information may be disputed or confirmed which can impact the settlement offer. This should be the first step in evaluating any settlement offer.
Familiarization with the methods that each computerized system employs is necessary to further review the settlement offer. Possibly one of the most mis-used and arbitrary interpretations noted in (New York Regulation 64), is how an insurance carrier will use the term substantially similar. A database may be programmed to select all similar vehicle models, but may also include similar models of varying years. It is also not uncommon to have base model vehicles compared to a substantially enhanced model (loss vehicle) that have most, if not all, of the manufacturer options. In most situations this will reduce the comparative vehicle calculation and result in a lower settlement offer.
Settlement offers may also be impacted by what appears to be a statistical elimination process. Some computer generated settlement offers appear to eliminate comparative samples that exceed a median value as determined by using the entire database. This results in comparative vehicles with lower advertised or sold prices being used in computing the total loss settlement offer. In statistical terms this is known as “beyond the standard deviation” and is used in sampling where variation beyond a specified dollar amount will result in elimination from the sample. This elimination method can result in a substantial reduction in a settlement offer, but may be statistically valid based on the programmed criteria.
Regulation 64 allows insurance carriers to use a computerized database to assist in providing an offer that is easily computed, and in theory, comparable in the local market place. As defined the local market area is determined to be a 100 mile radius from the loss vehicle residence. With this approach, a Nassau or Suffolk County resident may see comparisons to Springfield Massachusetts. The driving distance in this example is closer to 150 miles. However, is does meet the radius requirements and may be used to decrease the average value used in the settlement offer. It is also not unusual to see comparative vehicles that violate the 100 mile radius rule. One database company uses zip codes and not specific addresses when gathering comparative data for settlement offers. Depending on the size of a town, the general area zip code approach can impact the 100 mile radius variation. The state approved 100 mile radius method being used, as well as the generic area interpretation by some database companies, tends to reduce the average price for comparable vehicles and directly reduces the settlement offer.
Databases are a useful tool when used properly and may enable an insurance carrier to provide a market valuation report within 24 hours. However, this is the carrier’s resource for supposedly impartial information; is programmed based on the carriers own criteria, and is only available by and through a request from the carrier. The quick response does not exist where errors are noted and an amended valuation is requested. Insurance carriers will insist the data and presentation are correct for the contracted services they receive from their database provider. Obviously, impartiality does not exist in the data prepared or presented in this scenario. Delay tactics are a common method used to intimidate the vehicle owner who questions the insurance carrier. Being familiar with insurance carrier tactics, I provide a buffer for the vehicle owner and insist on patience and perseverance.
In summary, Insurance companies present data that is supposedly generated by impartial organizations and is purported to reflect the actual market place. Through review and testing it is difficult to support that assumption. While the average consumer is lead to believe that total loss settlement offers are fairly and impartially prepared, a review of such does not support that assumption.
This article has only focused on total loss settlement offers and has not addressed the impact on automotive body shop repair services. Considering the stated rule of a 75% repair cost in determining a total loss, any vehicle valued at less than fair market value may directly impact associated auto body repair services that should be a covered service.
The winner here is the insurance carrier. Paying out less in the way of total settlement offers and manipulating data to deny vehicle repairs only benefits the insurance carrier.
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.