How do insurers decide a car is totalled/ written-off?

write_offEvery vehicle owner dreads the day that his vehicle is damaged, taken to a repair shop and the damage assessed.

Few of us have the knowledge to make a judgement on the cost of repairs – and we are always guessing what the potential damage might be. Sometimes we are informed that the car is not worth repairing/ beyond repair – and this is usually communicated to us in terms such as “the car is a write –off” or “the car is totalled” or “is a total loss”.

This decision to write-off the vehicle has often resulted in disagreement between the insured client and his car insurance company – and we would like to provide in this blog post some insight to how this decision is made.

The car insurance policy and the decision to write-off the vehicle

As a starting point we need to consider the terms and conditions of the car insurance policy. The car insurance policy is an agreement between the insured vehicle owner and the car insurer and stipulates the obligations and terms and conditions under which insurance cover is provided.

Car insurers set the standards by which they determine whether or not a car is totalled or written –off , and need to disclose this to the client in the terms and conditions of the policy. The car insurance policy provides cover for vehicle loss and damage – and the car insurance company will use professionals to calculate the value of such loss or damage.

What happens when my vehicle is damaged?

After an accident or other vehicle damage, your insurance company will send a qualified assessor to determine the damages of your car. This assessor (also known as an adjuster) calculates the damage of your vehicle in monetary terms and this assessment is than compared with the actual value of the vehicle.

Should it cost more to repair the vehicle to an acceptable and roadworthy condition than the actual value of such a vehicle, the car insurer will decide to write-off of the vehicle….

Which factors are considered by the assessor / insurance company?

It is important to note that there are more factors to be considered than merely the physical damage to the vehicle in making a decision whether it is economically feasible to repair the vehicle.

Factors to be included in the assessment are:

• The cost to repair / fix the vehicle and meet the necessary road safety measures
• Storage costs while the vehicle is being repaired – These are considered by some international car insurers although some car insurers in South Africa have rejected this as a factor to be considered
• Hire charges – if the car insurance policy covers the provision of a rental car while the vehicle is repaired , then these costs of the rental car can effect the decision by the car insurance company as it presents a higher costs to the insurer. Some car insurers in South Africa have however confirmed that they do not consider car hire as a factor in the write off calculation. They believe the client pays a premium for this and it should not be part of the write off decision.

It is important to be aware of the fact that not all car insurers use the exact same formula in the calculation of whether to write-off the vehicle. It is suggested that you communicate with your car insurer in this process to enquire how this decision is made.

Please note that other factors to be considered include parts availability, age and condition of the vehicle before deciding to write it off. In many cases one might wait for parts too long as they are imported. Structural damage is also a deciding factor as damage to a chassis or roof can be repaired, but one would not risk safety on a vehicle even after repairs are done. In these marginal cases one most likely write off the vehicle.

The guideline the industry uses when deciding to write off or not is 70% of the value of the vehicle.

Actual cash value of the vehicle

If the value of repair exceeds the actual cash value of the car, and also if it cannot conform to road safety measures, it may be termed written-off or totalled. What is this actual cash value and how is it calculated?

Actual cash value is often calculated as ‘fair value’ which means the values at which a willing buyer and a seller would exchange a vehicle for in arms-length transaction. To calculate the actual cash value the insurer will closely monitor trade publications to value the vehicle, amending these figures for the age, condition and mileage of the car.

What happens to the vehicle after it has been written- off?

Your insurance company, once your vehicle insured vehicle is written-off, will make payment under the terms and conditions of your car insurance policy. The insurance company then owns the damaged vehicle and can mostly do what they want with it. This will inevitably mean they will re-sell it to a salvage company to offset their own costs and compensate for the payout.

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