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Questions Surface On How Insurance Companies Calculate A Car's "Total" Value
When your vehicle is totaled in a bad accident, your collision auto insurance is supposed to pay for the actual cash value of your car at the time of the crash. Your claim check should put you back where you were pre-accident, right? But insure.com has obtained evidence that shows auto insurers are shrinking your payment in order to increase their profit.
Unlucky folks who've had their wrecked cars totaled often note that their insurance company checks for their totaled cars were much lower than they expected. The Kelley Blue Book and National Automotive Dealership Association (NADA) Guide references that we've been led to believe are definitive sources of used-car values often show higher car values than what people received from their auto insurers.
That's because insurance companies subscribe to private databases of car values, from which they pull dollar amounts for cars. So, while you may be leafing through Kelley Blue Book to find the value of your 1996 Honda Accord, your insurance company is looking at a proprietary database to which you don't have access. The main car-value database competitors are: ADP Claims Solutions Group (which uses data from 1,200 dealers and thousands of automobile trade publications), based in San Ramon, Calif.; CCC Information Services, based in Chicago; and Mitchell International out of San Diego (which uses an average of the Kelley Blue Book and NADA values). But these databases, and in particular the one from CCC, can allegedly be used for fleecing you out of the real-world value of your car.
Internal Farmers Insurance Co. documents submitted in the discovery process of pending litigation (including the pending case Buratovich vs. Farmers Insurance Exchange and Farmers Insurance Co. of Arizona and CCC Information Services Inc. case out of Arizona), allegedly show how these databases can be used by insurers for a systematic pattern of "ratcheting down the price the insurer has to pay a policyholder for his totaled vehicle," according to Stephen Ryan, an attorney based in Scottsdale, Ariz. Ryan represents the plaintiff in Buratovich vs. Farmers, et al. and has investigated CCC for an article he wrote for Trial magazine in June 1999. He also represents three other plaintiffs in similar car-value cases, also filed against Farmers Insurance.
The Farmers Insurance documents suggest that the company chose to use CCC car values not because they were the most accurate, but rather solely because they were the lowest, resulting in smaller claims checks to policyholders. In a letter authored by a Farmers Insurance division claims manager in Columbus, Ohio, Ted Bair, to Dave Colburn and Ray Schmidt, claims officers in Indiana, Bair writes about a pilot program using car-value software that culled values from the NADA price guide, local newspapers, and dealer quotes. When Farmers used that software, collision total-loss costs for Farmers increased 31.8 percent; comprehensive losses increased 6.6 percent; and property damage costs increased 18.5 percent. Farmers felt these payouts were too high, and Bair directed that use of the software "IS TERMINATED".
"Additionally, an analysis comparing 50 closed total loss files from each of your offices reflected an average savings of $382 per file utilizing CCC," the memo states. Seeking lower claims payments and thus lower costs, the Indiana claims managers "reintroduced" themselves to members of CCC management, who "provided 100 percent commitment to 'making things right' in the state of Indiana for Farmers."
Farmers Insurance Co. officials would not comment.
Insure.com has also obtained an April 1993 proposal from CCC in which it promises to save one Top 20 auto insurer $11.1 million over one year in its total-loss settlements, or $322 per settlement check. A 1996 annual report provided by CCC to that insurer shows a comparison between CCC's total-loss values and those of an "alternative method" the NADA guidebook. CCC's total-loss valuation system saved the insurer $14.9 million over the NADA guidebook value that yeat, or $542 per total-loss claim.
Coming to a claim check near you
According to CCC, about 350 insurance companies across the nation use its database, including the Top 50 largest auto insurers. CCC information is used to calculate the value of 80 to 90 percent of the more than 2 million totaled vehicles in the country. Insurers generally pay between $25 and $30 for each total-loss valuation performed by CCC, depending on the number of valuations the insurer requests.
Allstate Insurance Co., the nation's No. 2 auto insurer, uses total-loss products from both CCC and ADP, according to Al Orendorff, a spokesperson for the insurer. "CCC's program benefits both the consumer and us," he says. It helps keep costs down because the subscription to the database is cheaper than others, and it helps Allstate settle claims quickly and fairly, he claims.
The nation's No. 15 auto insurer, The Hartford, believes that CCC is fair to policyholders because it "takes into account the individual condition of each vehicle, as well as market valuation of the vehicle in its local market," says company spokesperson Cynthia Michener.
Insure.com contacted several other large insurance companies that use CCC data, including Progressive and GEICO, but all declined to comment.
It's difficult to challenge the fairness of total-loss valuation programs, says Paul Fox, an attorney for CCC at the law firm Greenberg Traurig in Chicago, because there's no standard for comparison. "If the CCC product does invariably produce a lower value, does it do so unfairly and inaccurately is the question," says Fox. "It's the only [total-loss valuation] company that inspects any of the vehicles," he says, which leads to a more accurate perspective of the vehicle's value. CCC inspects about one-third of all the vehicles in its total-loss valuation database, according to Fox.
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