Automating Vehicle Loss Valuations

The repairable vehicle claims process is well understood and well documented. Electronic estimating, imaging desks and Internet-based workflow modules have truly allowed for a paperless claim file. This has eliminated manual tasks such as decoding the Vehicle Information Number (VIN), gathering parts costs, determining labour hours, transferring photos and of course calculating the cost of the repair.

Contrast this with the vehicle total loss settlement process. Total losses represent approximately one-fifth of all Canadian vehicle claims by volume, but significantly more by insurer payout. Up until now, the settlement process for total losses has been arduous and labour intensive. Usually a dedicated team of total loss specialists is required to settle claims, in part because of the level of detailed knowledge required to arrive at and negotiate the settlement. In an age of technologically complex vehicles, cars and trucks total out more frequently than ever before. Vehicles reach the total loss threshold much faster now, due to the advanced electronics for traction control, anti-lock brakes and engine management computer modules present in later model automobiles.

Searching for Comparisons

The first step in a typical total loss claims process has been for the adjuster to search for comparable vehicles via the Internet — a process involving a minefield of issues. Privacy issues prevent the VIN from being displayed; usually, only the model level information — missing trim and sub-trim information — is available online.

Once a few comparable vehicles are found, the adjuster will have to calculate adjustments manually. The odometer difference between the loss vehicle and the vehicles found online will need to be considered, as well as regional differences in the event that the comparable vehicles are geographically far from the loss. In addition, equipment must be compared. If the vehicle option packages found online do not match that of the loss vehicle, each piece of equipment must be valued and then added or subtracted from the total. If the insured provides receipts, then more calculations are required to depreciate those options to real-time. The adjuster may also consult published guides such as the Canadian Red Book or Canadian Black Book, which provide estimated values. Finally, the adjuster takes the calculation of the average value of the adjusted list price, combines it with screenshots of similar vehicles found for sale online and supplies this all to the insured in either a PDF or Word document.

Beyond a ‘Gut Feel’

If you think the above process is painstaking and time-intensive, you are right. But now the adjuster is tasked with explaining to the insured how the total loss vehicle settlement was derived. Since the methodology is not consistent or backed by a credible third party, the consumer is often hesitant to accept it. This leads to a lengthy negotiation. Not only is this time-consuming for both parties, it generally leads to customer dissatisfaction.

Only recently have extensive databases of Canadian vehicle data been leveraged with econometric algorithms to create solutions that instantly value vehicles. These databases comprise both advertised and sold records, which are then filtered for incomplete records or data with suspect information such as extremely high or low mileage values. While an adjustor may “eyeball” a record to determine if it looks out of order using the manual process described earlier, an automated system will use an algorithm to determine if the record is reasonable. Using the example of odometer values, a rule may filter the values based on a number of standard deviations beyond the average for that specific year-make-model.

Once reasonable-looking comparables are found, the database will sift through thousands of records in order to find the most similar comparable vehicles near the loss vehicle, again using specific rules developed based on historical data associated with that particular model. By comparing sold records for that specific loss vehicle against advertised vehicles, an adjustment factor can be applied. All these adjustments are automatically calculated against each sold or advertised vehicle to arrive at an adjusted comparable price. The average of all listed comparables is then used to determine the value of the loss vehicle.

What is the net result? Within a minute of providing the loss vehicle VIN, the adjustor receives a professional-looking report detailing the loss vehicle’s information, as well as each comparable advertisement and their associated adjustments. In addition, vehicle history reports can be provided as part of a comprehensive package. Armed with a report from a credible third party that clearly quantifies the value of the insured’s vehicle, the adjustor can much more efficiently settle the claim.

Rhonda Bricknell, supervisor of auto physical damage at Unifund Assurance, summed up the value of these new technologies. “What makes it effective is that clients can see the actual report and details on how the true value of their vehicle was determined. It’s not based on someone’s opinion of the value of the vehicle — total loss reports make the adjustments based on facts, so it is a more efficient, reliable and easier process.”

These new total loss valuation automation tools promise a win-win for the insurer and claimant. The insurer gets quicker, more accurate settlement values that take less effort. More importantly, consumers receive clear documentation of how the market value of their vehicle was derived, allowing them to put the claim behind them and move on following an extremely emotional time in their lives.