Why cash-strapped drivers need collision coverage

High gas prices and other inflationary impacts of the Iran conflict and U.S.-Canada tariff spat means money is tight for many personal auto insurance customers.

That’s led many who are struggling financially to skimp on coverages they might later need, says Jesica Ryzynski, a claims specialist at Mitch Insurance. She stresses many of these drivers are younger and generally own older cars. Often, they buy just enough insurance to get their cars on the road and will forgo collision coverage to save money.

“They’re making that decision purely based on premium,” she tells Canadian Underwriter.

But that kind of economizing can backfire, especially in cases of hit-and-run or other not-at-fault accident scenarios. In those situations, says Ryzynski, drivers need collision even if a vehicle is older and only worth a few thousand dollars. 

“What I’m seeing is…a lack of knowledge [demonstrated] by the consumers, but also due to the economy and the stress people are under…”

Even for older vehicles, collision coverage is important if an accident leads to a total loss, she says.

“Vehicles are frequently being deemed a total loss after a hit-and-run,” she says, noting vehicle age and lack of parts availability makes that result more common. “[If] you don’t have coverage for that situation, you’re still going to be out a couple thousand. Sometimes I feel like it’s better to have something than absolutely nothing.”

Related: How a few dollars worth of parts can total a vehicle

Plus, many insureds presume they’ll be able to claim against an at-fault driver’s coverage. But that only works if the guilty driver is found.

Claiming against an at-fault driver requires the insured party to identify the driver and attach an insurance policy to that car and its driver. That’s possible when dealing with honest people because the car’s license plate will link to a valid insurance policy. But not every at-fault driver who causes an accident fits that description.

Plus, says Ryzynski, the police simply “don’t have time to chase down every single license plate.”

Insurers have told her that if police can connect a person with a license plate, they’ll send them a letter giving them 30 days to respond. In smaller police detachments, officers will knock on a car owner’s door, but that doesn’t happen in the city. “That’s a huge barrier, because insurance companies can find the same information…but they’re not law enforcement, they’re not going to go knocking on doors,” she says.

Insurers can, though, run a Driver and Auto Search History (DASH) report to determine if there’s a valid policy connected to that plate and sometimes even locate the driver. If no policy turns up, it means the operator’s policy was cancelled or wasn’t covered.

“If they can’t provide a valid policy, you can’t settle under direct compensation property damage (DCPD). So, then we’ve got someone with a totaled car who’s actually stuck,” she says.

Related: Are long, pandemic-era car repair timelines making a comeback?

If at-fault drivers take off from highway crashes, the insured party often gets stuck with towing and storage fees on top of the financial loss of the totalled vehicle.

“My recommendation to people in this situation is always talk to the tow yard and see if you can relinquish a vehicle to them,” says Ryzynski. “The problem is tow fees, and the [storage] fees are insane.”

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Scrapping generally won’t cover those costs, or the loss of the vehicle, but it can stop the financial bleeding. Owners opting to recover their cars must work fast to find out if they can identify a driver and insurance policy to claim against because storage fees add up fast.

Ryzynski says she’s discussed this coverage gap with sales brokers at her firm.

“I have the opportunity to give them speaking points to try and sell collision coverage to somebody who may have otherwise said, ‘No’ to it [because] everybody is shopping based on cost,” she tells CU.

“The talking points would be, ‘I understand you’re trying to save money, but you probably saved up money to buy this vehicle. So, if something like this happens, even if it’s not your fault, you could be completely at a loss of this vehicle because you don’t have collision coverage, because it’s needed in these particular situations.’”