At first blush, it's hard to imagine why the Carstar collision repair chain is going to the trouble of setting up a financing program for people with auto insurance.
Surely, the folks who've been in an accident could just write a check for the $1,000 deductible charge, or put it on their credit card, and let the insurance policy cover the rest.
That's what they should do, of course, since their contract with the insurance company requires them to. If they don't inform their agent of a collision, they could be found to be in breach of the agreement and liable to have their policy made void.
But if they do report the accident to an agent, it would create a situation that would end up with a driver with a heretofore clean driving record paying thousands more in premiums over six years. In many cases, then, it would be cheaper to write the crashed vehicle off and buy a new one.
Lee Romanov calls this situation "insane," and as the president of InsuranceHotline.com, which provides drivers with a way to find the best insurance rates for their specific situation, she is in a good position to pass judgment.
To show the affect of a single low-cost fender-bender on insurance rates, Romanov asked various brokers what would happen to a 35-year-old Toronto man who'd been driving crash-free for 19 years.
This person drives a four-door, all-wheel-drive 2000 Ford Explorer about 10,000 km a year, including a 10-km one-way trip to work. He has standard coverage, which means $1-million liability, $500 collision deductible and $300 comprehensive deductible.
After this small imaginary crash, his insurance rates would go up anywhere from $1,683 to $5,246 a year for six years. That's $10,122 to $31,476 in extra premiums because of a crash that caused maybe $1,500 in damages.
Based on that example and many others, it's not hard to see why Hamilton-based Carstar Automotive Canada has lots of clients looking to finance their collision repair work and avoid telling their insurance companies.
Carstar president and CEO Sam Mercanti says the decision to offer the Preferred Payment Plan was the result of direct consumer demand. In the past year, he says, the percentage of people who do not claim the deductible on some repair work has gone from 10 to 30 per cent.
"We have more customers paying out of their own pocket now," Mercanti says. There are also people who are not having the repairs done, or maybe going to some "smaller shops where they do the work in the backyard" and charge less, and that affects Carstar's 92 franchise operations.
Even though it's been in business for less than a decade, Carstar does about 4 per cent of Canada's collision repair work, which works out to about 6,000 vehicles a month, or $115-million a year in repair charges.
"We had to do something to combat this," Mercanti says. "We're losing a lot of business. We're losing about 10 per cent to backyard firms, and I hope to get that back."
Carstar's payment plan is good for as much as $4,000 in collision costs, and it can be spread over 24 months. A consumer is automatically approved if the vehicle is less than nine years old, has fewer than 160,000 km, the cost of the collision repair is between $500 and $4,000, and their vehicle is fully insured.
Carstar's initiative in offering financing seems to be unique in a private company, but Saskatchewan has just announced that it will do something similar.
The provincial insurance agency will offer the Deductible Payment Plan, which will allow customers with basic auto insurance to repair their vehicle immediately after it is damaged, then pay off the deductible over a period of 10 months.
"People don't plan to have an accident," says SGI minister Maynard Sonntag, "and sometimes paying the deductible can be tough on the family budget.
"It doesn't matter how a vehicle is damaged -- collision, vandalism or theft -- if a customer has a deductible to pay, and is eligible under the program, they can access the plan."
The Saskatchewan plan involves the car owner making a $100 down payment when she or he picks up the car, with the balance withdrawn from their bank over 10 months. There is no interest, but there is a one-time $30 administration fee charged at the same time as the first payment.
Insurance rates in Ontario have been coming down for some months, says Mark Yakabuski of the Insurance Bureau of Canada, and they should keep dropping.
Yakabuski says the positive side to the current insurance rates in Ontario is that it has forced people to "reconsider their attitude to risk management."
This means that they should be more careful when they're out driving, for one thing, and they should also be willing to consider the need to pay for their own repairs instead of making an insurance claim.
As for insurance premiums varying, Romanov suggests people should consider changing companies every time something significant happens to them, like being in a crash or getting married.
"Many people after getting in to an accident are afraid to switch insurance companies because they feel that no one will want them," but "that is exactly the wrong thing to do."
