How you can recover from increasing total loss claims

Total losses resulting from auto accidents have been steadily rising over the past few years due to economic variations and market changes. Improved employment, inexpensive gas prices and mobile lifestyles have led to people driving faster, longer, and more often. As a result, vehicle values are depreciating at record speed. And while you can’t prevent your borrowers from getting in accidents (if only!), you can take steps to reduce the number and severity of these accident claims.

Let’s take a step back to look at what is causing the rise in these total loss claims in the first place:

Higher Loan to Value Ratios 

Vehicles on the road today typically lose value at a much faster pace. People are driving faster, longer and more often, while paying more for their vehicle. This has led to an accelerated depreciation value with buyers facing a 20% decrease after the first year of purchase, and upwards of a 40% loss in value after 5 years.   

On top of that, loan amounts and term lengths are at a historic high. Loan amounts for new and used vehicles increased once again in 2019, at $32,480 and $20,446 on average, respectively. Additionally, many of these loans have longer finance terms averaging 69 months for new and 65 months for used, with increasing consumer interest in 73-96 month options.    

Growing Severity of Accidents

The number of drivers on the road grows every year, increasing the likelihood of an accident. Estimated 2019 statistics from the Federal Highway Administration (FHWA) share that there was a 24 billion mile increase in total annual miles driven by US drivers (about a 1% increase), while crash fatalities remained consistent from 2018 numbers.

In 2018, there were over 6.7 million police-reported crashes, compared to 6.4 million in 2017. While crash fatalities in recent years have shown slight decreases, it’s notable that property damage only (PDO) crashes continue to rise. In 2018, 71.4% of reported crashes were categorized as PDO (compared to 70.2% in 2017). This growing severity of crash damages is, in part, attributed to distracted driving behaviors, with approximately 10% of fatal crashes reported as ‘distraction-affected.’

Undervalued Insurance Settlements

With cars becoming increasingly more technologically advanced, repair costs quickly add up. This has led to a noted increase in total loss claims. It is less complicated and less costly for an insurance company to “total” a vehicle, especially if a borrower has GAP coverage. Many insurance carriers are now using automated tools to settle accident claims to save on time and money. The market assessments performed by these tools often increase the amount of deductions taken out for the vehicles involved, resulting in undervalued vehicle assessments and an increase in claim amounts. Deductions taken to reduce market value might benefit insurers by saving on claim costs, but the practice results in greater potential for GAP claims and losses for lenders.

3 Actionable Next Steps: How Can You Reduce the Risk?

The key to reducing the amount of total loss accident claims is to help your borrowers negotiate the insurance settlement. Every claim an insurance carrier submits can be negotiated, yet most consumers typically accept their insurance company’s first offer. 

  • Educate your loan staff and borrowers 

Many borrowers don’t know their role in the process or their rights after an accident. Their main concern is fixing or buying a new vehicle as soon as possible. If you inform them about the claims process and their right to negotiate at the onset of a loss settlement, they will be much more likely to participate and work through the process. Providing training resources for your loan staff can be a helpful step to best inform and support your borrowers.  

  • Perform your own evaluation 

Performing your own evaluation of the actual retail cash value – not wholesale value – of the vehicle will enable you to verify the accuracy of the insurance’s loss claim and arm your borrowers with better tools to negotiate with their insurance companies. You can launch an in-house valuation program to assess the actual cash value of vehicles, or you can outsource these processes to third party vendors, like Allied Solutions, who have experience performing valuations and claims assessments on thousands of vehicles. 

  • Verify the vehicle specs

Maintaining copies of the dealer spec sheets for all of your direct and indirect loans will enable you to verify or negate the history, mileage, and condition of the vehicle. Negotiating these specs with insurance companies can increase the vehicle’s determined value by hundreds to thousands of dollars.

Performing these tasks can help your business recover lost dollars from undervalued claims, while protecting your GAP program. Not only will this benefit your bottom line, but it will also bring incredible value to your borrowers by helping many of them collect money that they could have missed out on.

If you are interested in learning more, download our report on the State of GAP here.

 

  1. Car Depreciation. Car Fax: https://www.carfax.com/blog/car-depreciation\
  2. State of the Automotive Finance Market. 2019 Q3: https://www.experian.com/content/dam/marketing/na/automotive/quarterly-webinars/credit-trends/2019-q3-experian-automotive-safm.pdf
  3. Traffic Safety Facts. NHSTA 2018 Report: https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/812860
Anne Holtzman

Anne Holtzman

Anne Holtzman is responsible for internal product development and identifying and developing partner vendor strategies that serve to provide risk management solutions to all facets of lending institutions. She has ... Web: alliedsolutions.net Details

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