When an insurance company declares a car a total loss

Hey folks! This is Mike and Tom from Pacific One Collision and Restoration.

Welcome to another Q&A session where I answer questions from you all on the internet.

Today's question is:

"When an insurance company declares a car a total loss"

Summary:

Mike explains that damage which looks minor on the surface can be significant once modern electronics are involved, including forward-facing radar, blind spot monitoring, camera mirrors, and lane departure systems, so a repair that appears to be five or six thousand dollars can become a total loss. He notes appraisers usually work from photos behind a desk, but the shop's first teardown can reveal significant damage that crosses an insurer's threshold. Each insurance company sets its own threshold, and the shop's estimating software flags a total loss once the repair reaches roughly 70 percent of the vehicle's value. Value is where it gets sticky: a customer may believe their car is worth 25,000 dollars while the insurer values it at 20,000, and the 70 to 75 percent calculation applies to the insurer's figure. Insurers use algorithms, fair market values, zip code, and recent sales to set that number.

Answer:

In what situations does an insurance company determine a total loss? Going back to the surface, if you're looking at a vehicle with bumper damage that would appear minor to most, it can be pretty significant. The reason I say significant is because a lot of these new cars have a lot of electronics; they have forward-facing radar systems, blind spot monitoring, mirrors with cameras, and lane departure warning systems. So a repair that looks minor, say five or six thousand dollars on the surface, when we really get down to the nitty-gritty, has become a total loss in the past. But it's not just the modern cars either. You have to remember the insurance companies, in most cases, have appraisers or estimators sitting behind a desk looking at pictures. But when it comes into the shop and we do that first teardown, there's significant damage, and it may pass what's called the insurance threshold. Each insurance company has its own threshold, and with our estimating software, once we hit about 70 percent of the value of the vehicle, that is when it's determined to be a total loss. Car values are where it can get a little sticky, because you may think your car is worth 25,000 dollars and the insurance company may think it's worth 20,000. From the estimating side, once it hits about 70 to 75 percent, it becomes a total loss, and it's 70 to 75 percent of the 20,000, not the 25 you believe your car is worth. The insurance companies all have a predefined value in most cases. They use a bunch of different algorithms to come up with the number, fair market values based off area, zip code, and recent sales.