The underbelly of replacing a totaled car

Underneath the still water of car insurance lies an unseen monster that comes up and attacks every car owner who has their car replaced after an insurance company declares the vehicle a total loss. Consider this true story:

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Becoming a victim…twice

Your daughter is rear ended by a distracted driver while waiting to turn left. The insurance company of the person who hit her considers the car a total loss. To her surprise, the amount the insurance company offers for her vehicle is approximately 20% lower than the cost to replace her vehicle! Is this a mistake? As it turns out…no… it is a systemic occurrence of paying less than the Fair Market Value* by virtually all insurance companies.

So now your daughter is a victim of two tragedies. One, as an innocent victim of a car accident that totals her car and two, as a victim of the insurance company.

The fair market value fallacy

Unbeknownst to most of America, the valuation of vehicles deemed a total loss is determined by one company, CCC Intelligent Solutions. Per CCC, their services are used by18 of the top 20 insurance companies and their valuation model does NOT use a Fair Market Value standard to replace your vehicle. Instead, their model determines a value that, when compared to valuation models found at Kelly Bluebook, Edmunds, and NADA is systemically low.

Variables become an opportunity to cost you money

Think about it...why does CCC Intelligent Solutions have a stranglehold on the car valuation business? Because it saves the insurance companies money. Here are three things they do to ensure insurance has the edge in payouts:

• The three-comp approach. CCC's model compares your vehicle to three specific vehicles versus applying the model against a large database. How the three vehicles are selected from their database is a secret, and if you find vehicles you think are more comparable in mileage or location, good luck trying to replace CCC's choices. In the example above, a local dealer had a similar model valued at $2,000 more, but Allstate and/or CCC refused to consider it as a comparable vehicle.
• The mileage adjustment. In the story above, the low miles on your daughter’s destroyed vehicle were given a credit of $2,124, while online services valued the low miles at over $3,000. This creates an instant savings of over $800 for the insurance company!
• The condition assessment reduction. The model also uses a valuation reduction number against all three of their chosen comparable vehicles. The description on their report is vague as to why the adjustment is made and whether the amount is reasonable. This lack of transparency is the subject of many lawsuits across the United States.

The reason all this works is because valuation is never one number but rather a range of values and the CCC model figures out how to stay low, but not so low that it cannot be defended in court.

What you can do

• Awareness is key. Every consumer needs to know this is how the valuation model works. Plan on paying an additional 20% to 30% of your car’s value to replace it with the same model in similar condition.
• Avoid large car loans. Understand that if your car is totaled you will need to come up with money to replace it, so avoid taking out a large car loan. An unavoidable accident, even with no medical bills, could place your financial life in chaos.
• Challenge the replacement  determination. Insurance companies will probably hit the replace-not-repair number more quickly when they know they save 20% to 30% by declaring your car a total loss. So before agreeing to this determination, demand a repair estimate from a trusted auto body shop. Then look at the value of your car, reduce it by 20% to 30% and see if you agree with the insurance company’s determination.
• Find insurance companies that do not use the CCC service. Good luck on this one, as a quick search shows that Farmers, State Farm, GEICO, Allstate, Liberty Mutual, USAA, Nationwide, and Commerce all use the CCC service.
• Fight back. Continually work to increase the insurance company's offer with facts. Consider making a formal complaint with representatives in your state.

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While hard to do, always drive towards fair market value and not some unbalanced valuation model driven by a single company as the only factor when valuing your totaled vehicle.

*Fair Market Value standard as defined by the Internal Revenue Service in determining the value of all tangible assets, including automobiles.

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