On the surface, the perception is that while one hand giveth, the other taketh away.
According to State regulations, auto insurers are required to use comparable values of like vehicles in the region, when determining the value of a vehicle for settlement purposes. In other words, if a vehicle is considered "written off" and beyond repair, a value needs to be attached to the vehicle for purposes of fair settlement. Accepted values are either the asking price, or the actual retail sale price, of a comparable vehicle.Factors such as model year and mileage would be part of the equation. Rather than simply 'guesstimate', the insurer is required to obtain non-biased data for the represented vehicle in question from a qualified industry source.
However, it is alleged that since May of 2007, this hasn't been happening in California for policyholders with State Farm. While it is not known what actual tactics State Farm employs, at least one other company has been accused of circumventing the system by securing not the actual sales price, or value of a vehicle, but rather the lowest possible price that a dealer would accept. This, in turn, would translate into a lower value attached to the vehicle to be written off, and hence a lower settlement for the policyholder.
At the end of the day, the policyholder is short-changed, and the insurer pockets the difference.
California insurance regulations are designed to protect consumers from such alleged practices. What's more, the California Insurance Commission has been keeping a watchful eye on the profit margins enjoyed by insurance carriers in California, and for the past few years then-state Insurance Commissioner John Garamendi has been ordering the various insurance companies operating in California to extend rate reductions to its policyholders, after it was found that the percentage of the premium dollar used to settle claims was shrinking.
In other words, the companies were found to be spending less and less on claims settlements, while continuing to reap the rewards of higher premiums.
Thus, Garamendi - as Insurance Commissioner charged with the dual responsibility of ensuring the insurance industry remain healthy and profitable, but also to serve as a watchdog for the consumer - ordered the rate reductions.
For its part, State Farm - one of the four largest carriers in California - ponied up with almost half a billion dollars worth of rate reductions in January of this year, scheduled to go into effect this past spring.
The new figures translated into a reduction of $230 million for homeowners and renters, and a $259 million drop in rates for drivers.
One can only speculate if this newfound alleged practise of undercutting the value of a vehicle for purposes of writing it off, has anything to do with the required drop in rates.
State Farm is no stranger to unscrupulous tactics. In 1999 a jury in Marion, Il awarded $456 million dollars in compensation to the plaintiffs of a class action lawsuit over a parts scam.
State Farm was found, by virtue of the jury verdict, to have defaulted with regard to a practise of using non-OEM or imitation aftermarket parts in the repairing of vehicles after an accident. The practice, which would have translated to savings for State Farm, violated the carrier's contractual responsibility to its policyholders, concerning its obligation to restore a damaged vehicle fully, and completely to its pre-crash condition.
California residents and State Farm policyholders who have experienced an accident and have filed a claim for a totalled vehicle since May of this year, are urged to re-visit the amount received for the vehicle in question, to determine if the amount accurately reflects what the vehicle was truly worth at the time of the accident.
A couple of calls to dealers, for an independent, non-biased second opinion, would be prudent.