That would make another state that requires payments for immaginary “diminished value”.
Several (four that I know of) already do, the problem is that there’s little way to actually calculate how much diminished vaule is caused by an accident since the alleged costs will not be realized until the customer decides to sell the car.
If the customer has an accident in it two weeks after purchase the payout would have to assume the vehicle is to be sold at that moment. If the customer keeps the car for ten years and sell it after it has 250k miles on it, oxidized paint, cigarette burns in the floor, and “kid stains” in the back seat the fact it was in an accident a decade before is probably not going to be taken into account if someone buys it.
How do you calculate the loss of value when there’s been no actual loss of value? Even if they do sell it immediately after repair there’s nothing technically wrong with the car (assuming it’s been correctly repaired) just a presumption that it’s worth less.
It would be like a homeowner’s policy paying out because someone was murdered in a house (or that it’s “haunted”). There’s a perception that the house will be worth less since some buyers may be put-off by its history but I’m sure when the county does a tax appraisal on the property they’re not going to consider how many ghosts are in residence.
There is too a loss in value. The loss is that now your assets are worth less than before. Just because it’s not a cash loss, it’s still a loss. You lose equity, you lose value. Insurance is suppose to make like you were before. If your net assets were $100,000 before, and your car is worth 5000 less, now your assets are worth $95,000. Insurance needs to pay $5000 in cash so you’re still at $100,000. Just because the type of asset changed doesn’t make a difference. Depreciation really doesn’t matter either because it’s the loss at the time the vehicle was wrecked.
Maybe there is a real loss in value, but it is a loss in value that is impossible to quantify in most situations.
A diminished value loss relies on perceived information in a fair-market-value transaction that may or may not take place. If that transaction does not occur, the diminished value cannot be determined. Even if it does occur, the “pre-crash” value of that particular vehicle is not readily available. (Yes, I know blue books exist, but find me an insured who won’t say his vehicle was in “above average” or “excellent” condition.)
The bottom line is, if a loss can’t be valued, it can’t be insured. I would argue that diminished value losses fall into that category.
How do you insure against a perception? How do you value a percieved loss? What’s the cost of “diminished value”? Is it a percentage of value? Is it a flat rate? Is it more on a “status or collector’s vehicle” than a “grocery getter”? At what point is the loss realized? When the automobile is damaged? Is it lessened by the quality of the repair? Is it payable when the vehicle is sold for the difference in value at the time?
The purpose of insurance is to return the policyholder to his/her pre-loss state, not to pay a profit.
If the vehicle is $20k pre-loss and is repaired using OEM parts by a factory certified technician, what’s the diminished value? The customer has the car back in a pre-loss functional state. If we say there’s $3000 worth of diminished value and the policy holder is paid that $3000 they have the car plus $3000. If they keep that car until it’s near worthless then junk it they have the repaired car, 10+ years of use, and $3000. They’ve turned a profit based on an imagined devaluation of the vehicle.
Now quote the exact same car with a major accident repaired by a certified technician using all OEM parts.
Now do a quote, again on the same car, but this time do a minor accident repaired using reconditioned parts installed by a rabid weasel.
Did you notice something? There’s no fields on either site to calculate for diminiushed value. That’s because the condition, mileage, zip code, etc are real calculations to determine the car’s actual cash value, not accidents. An poor repairs affects the condition of the vehicle, a proper repair affect an imaginary, percieved (and uninsurable) value.
Sad to read some of the previous comments. Let’s actually review this with some maturity, in lieu of emotion.
First, diminished value is VERY real. If you argue the opposite, then please give me your brand new car, let me wreck and repair it, and keep that ignorant smile on your face.
Next, please separate liability from physical damage. You darned well owe it on a liability policy — so you’d better figure it out. Don’t quote me nonsense that it cannot be determined… because we do manage to value “emotional distress” every day in the claim business, so I’m confident the property equivalent can be handled. On the physical damage side, address it on the policy and make your choice. If you want it covered, buy that coverage, and pay the difference. If you’re one that doesn’t care, then allow the policy to exclude it on the PHYSICAL DAMAGE side.
We’re in the insurance business — SELL MORE INSURANCE. Create diminished value as an option — just like replacement cost or actual cash value are options. The policy, on physical damage, does not generally intend to cover this loss now… so hooray, we get to sell more insurance than before, AND, we get to have less arguments with our client later!
Finally, stop the “Chicken Little” nonsense. Insurance carriers do not “pocket” the difference… they base their rates on the loss value, and the premiums are simply less. If we define it as not covered on physical damage, then there is plenty of capacity to write it, charge the right rates, and move on. If we have to pay it (liability or physical damage), then the rates are simply going to reflect that going forward.
What is a good debate is whether it should be covered, or not, going BACKWARDS. Did the rate set intend for that coverage? In liability, it did not, but should have, and the insurer would only pay it if that amount was demanded. They shouldn’t be paying an adverse party MORE THAN THEY DEMAND… that’s just dumb. In APD, it did not intend to cover it, and the court should not interpret that it did, for THAT COVERAGE. If that’s not patently clear in the policy wording, then fix it — and then start selling that extension as an option (I suspect most folks would buy it, just like most folks buy RC rather than ACV). Now that’s a worthwhile argument!
“diminution in value” has been argued since I settled my first PD claim in 1970. Some people have deluded themselves into thinking that they deserve a perfect vehicle and that if an accident occurs, the car is no long safe. Not true. Does it lose value becaue it’s been repaired? Depends. Anytime you get behind the wheel you assume the risk you’ll cause or be involved in an accident.
The personal auto policy is clear on the insuring agreement. It has the option to pay for repairs, or the cost of an LKQ vehicle. It does not insure the resale value of the car. Like anything else, if people want diminution in value coverage, let carriers offer an endorsement to those who want it.
Spoke like a true insurance salesman. There are a lot of folks who wouldn’t want to pay the extra few bucks for the coverage. Making it mandatory isn’t the answer. People won’t pay for adequate BI liability limits now, what makes you think they’ll pay for an enhanced PD liability limit? It has to be optional and people should get what they pay for.
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That would make another state that requires payments for immaginary “diminished value”.
Several (four that I know of) already do, the problem is that there’s little way to actually calculate how much diminished vaule is caused by an accident since the alleged costs will not be realized until the customer decides to sell the car.
If the customer has an accident in it two weeks after purchase the payout would have to assume the vehicle is to be sold at that moment. If the customer keeps the car for ten years and sell it after it has 250k miles on it, oxidized paint, cigarette burns in the floor, and “kid stains” in the back seat the fact it was in an accident a decade before is probably not going to be taken into account if someone buys it.
How do you calculate the loss of value when there’s been no actual loss of value? Even if they do sell it immediately after repair there’s nothing technically wrong with the car (assuming it’s been correctly repaired) just a presumption that it’s worth less.
It would be like a homeowner’s policy paying out because someone was murdered in a house (or that it’s “haunted”). There’s a perception that the house will be worth less since some buyers may be put-off by its history but I’m sure when the county does a tax appraisal on the property they’re not going to consider how many ghosts are in residence.
There is too a loss in value. The loss is that now your assets are worth less than before. Just because it’s not a cash loss, it’s still a loss. You lose equity, you lose value. Insurance is suppose to make like you were before. If your net assets were $100,000 before, and your car is worth 5000 less, now your assets are worth $95,000. Insurance needs to pay $5000 in cash so you’re still at $100,000. Just because the type of asset changed doesn’t make a difference. Depreciation really doesn’t matter either because it’s the loss at the time the vehicle was wrecked.
Maybe there is a real loss in value, but it is a loss in value that is impossible to quantify in most situations.
A diminished value loss relies on perceived information in a fair-market-value transaction that may or may not take place. If that transaction does not occur, the diminished value cannot be determined. Even if it does occur, the “pre-crash” value of that particular vehicle is not readily available. (Yes, I know blue books exist, but find me an insured who won’t say his vehicle was in “above average” or “excellent” condition.)
The bottom line is, if a loss can’t be valued, it can’t be insured. I would argue that diminished value losses fall into that category.
Well put, Ratemaker.
How do you insure against a perception? How do you value a percieved loss? What’s the cost of “diminished value”? Is it a percentage of value? Is it a flat rate? Is it more on a “status or collector’s vehicle” than a “grocery getter”? At what point is the loss realized? When the automobile is damaged? Is it lessened by the quality of the repair? Is it payable when the vehicle is sold for the difference in value at the time?
The purpose of insurance is to return the policyholder to his/her pre-loss state, not to pay a profit.
If the vehicle is $20k pre-loss and is repaired using OEM parts by a factory certified technician, what’s the diminished value? The customer has the car back in a pre-loss functional state. If we say there’s $3000 worth of diminished value and the policy holder is paid that $3000 they have the car plus $3000. If they keep that car until it’s near worthless then junk it they have the repaired car, 10+ years of use, and $3000. They’ve turned a profit based on an imagined devaluation of the vehicle.
What a bunch of cr@p! I hope Nationwide appeals this ruling and kicks some serious @ss.
Another thing to consider:
Check NADA prices on any car you own:
http://www.nada.com
Check Kelly Blue Book on the same car:
http://www.kbb.com
Now quote the exact same car with a major accident repaired by a certified technician using all OEM parts.
Now do a quote, again on the same car, but this time do a minor accident repaired using reconditioned parts installed by a rabid weasel.
Did you notice something? There’s no fields on either site to calculate for diminiushed value. That’s because the condition, mileage, zip code, etc are real calculations to determine the car’s actual cash value, not accidents. An poor repairs affects the condition of the vehicle, a proper repair affect an imaginary, percieved (and uninsurable) value.
Sad to read some of the previous comments. Let’s actually review this with some maturity, in lieu of emotion.
First, diminished value is VERY real. If you argue the opposite, then please give me your brand new car, let me wreck and repair it, and keep that ignorant smile on your face.
Next, please separate liability from physical damage. You darned well owe it on a liability policy — so you’d better figure it out. Don’t quote me nonsense that it cannot be determined… because we do manage to value “emotional distress” every day in the claim business, so I’m confident the property equivalent can be handled. On the physical damage side, address it on the policy and make your choice. If you want it covered, buy that coverage, and pay the difference. If you’re one that doesn’t care, then allow the policy to exclude it on the PHYSICAL DAMAGE side.
We’re in the insurance business — SELL MORE INSURANCE. Create diminished value as an option — just like replacement cost or actual cash value are options. The policy, on physical damage, does not generally intend to cover this loss now… so hooray, we get to sell more insurance than before, AND, we get to have less arguments with our client later!
Finally, stop the “Chicken Little” nonsense. Insurance carriers do not “pocket” the difference… they base their rates on the loss value, and the premiums are simply less. If we define it as not covered on physical damage, then there is plenty of capacity to write it, charge the right rates, and move on. If we have to pay it (liability or physical damage), then the rates are simply going to reflect that going forward.
What is a good debate is whether it should be covered, or not, going BACKWARDS. Did the rate set intend for that coverage? In liability, it did not, but should have, and the insurer would only pay it if that amount was demanded. They shouldn’t be paying an adverse party MORE THAN THEY DEMAND… that’s just dumb. In APD, it did not intend to cover it, and the court should not interpret that it did, for THAT COVERAGE. If that’s not patently clear in the policy wording, then fix it — and then start selling that extension as an option (I suspect most folks would buy it, just like most folks buy RC rather than ACV). Now that’s a worthwhile argument!
“diminution in value” has been argued since I settled my first PD claim in 1970. Some people have deluded themselves into thinking that they deserve a perfect vehicle and that if an accident occurs, the car is no long safe. Not true. Does it lose value becaue it’s been repaired? Depends. Anytime you get behind the wheel you assume the risk you’ll cause or be involved in an accident.
The personal auto policy is clear on the insuring agreement. It has the option to pay for repairs, or the cost of an LKQ vehicle. It does not insure the resale value of the car. Like anything else, if people want diminution in value coverage, let carriers offer an endorsement to those who want it.
Rental companies have been pulling this stuff for years. In NY our PAP will cover your rental car, but not for diminished value.
But that doesnt stop the rental car company from coming after you anyway.
The other thing we need to worry about is what is the best public policy.
The fact is rates will go up. And as far as this being an optional coverage, that makes no sense.
Many people will opt to decline the coverage from their minimum liability policy.
Then when they get into an accident, they could now be found liable for diminished value and would not have coverage. This is a mess.
Bottem line is, do you want your rates to go up? I do, more commision.
Spoke like a true insurance salesman. There are a lot of folks who wouldn’t want to pay the extra few bucks for the coverage. Making it mandatory isn’t the answer. People won’t pay for adequate BI liability limits now, what makes you think they’ll pay for an enhanced PD liability limit? It has to be optional and people should get what they pay for.