Why insurers write off your car rather than paying for the repair

I slid through an intersection and hit somebody with my 2015 Honda Pilot. The airbags went off and the front bumper and grille were crushed. I’d expected that it would be fixed, but my insurance company wrote it off. It doesn’t seem very cost-efficient. – Ken, Mississauga

If your crashed car is worth $20,000 and it will cost more than $10,000 to fix, your insurance company might just give you the cash.

“If the value of the damage typically approaches 50 per cent of the value of the vehicle, the insurer may decide to write it off and say it’s a total loss,” said Pete Karageorgos, director, consumer and industry relations with the Insurance Bureau of Canada (IBC). “The insurance company looks at what will cost them more, to repair it or write it off.”

And while it might not look like serious damage from the outside, costs rise quickly, Karageorgos said.

“In some cases, vehicles are written off if an airbag deploys or if both driver and passenger airbags deploy,” Karageorgos said. “Those items probably cost a few thousand dollars to replace and then you have labour costs.”

So how does paying you $20,000 instead of spending $10,000 for repairs save them money? Well, your insurance company will get some money back when it sells your crashed car for salvage, Karageorgos said.

“If we’re looking at a $10,000 car with $6,000 in damage, they might get $1,000 back.”

Plus, major repairs could mean more headaches – and costs – down the road for your insurance company.

“I remember claims where people were upset with the matching of the paint – if the repairs aren’t done properly, the insurance company will end up spending more time and money to satisfy the consumer,” Karageorgos said. “And if there’s the potential that these vehicles may not be as a safe as before, liability may fall on [the company] as well as the consumer.”

If you think your car was worth more than they’re paying, you can appeal – but you can’t force them to repair it, Karageorgos said.

More write-offs than before?

“So we actually see more cars getting totalled than we have in the past because the cost to repair them is higher than it has been historically,” said Bryant Vernon, chief claims officer with Aviva Canada.

Repair costs are increasing, partially, because newer vehicles have more tech – things like sensors in the front grill and bumpers, Vernon said.

For instance, Aviva shared industry data that showed the cost to repair a front bumper cover on a Mazda3 was $301 in 2007 but $419 in 2017.

After fixing a damaged bumper, repair shops have to recalibrate sensors – and, if they don’t have the skills or equipment to do that, they may have to farm that out to a dealership, said IBC’s Karageorgos. Those costs, like any other extra costs, could lead to a hike in rates, he said

“Insurance is a business, so any time your underlying costs increase they will be reflected in the price consumers pay,” Karageorgos said, “It’s no different than operating a coffee shop.”

In January, Ontario launched a review of auto insurance rates. Right now in Ontario, rate increases are approved by the Financial Services Commission of Ontario – and the average increase for the third quarter of 2018 was 3.35 per cent.

But some companies were allowed to raise rates higher – the highest was nearly 35 per cent.

“We all know there is more tech in cars than there used to be, and I’m sure that has a cost associated with it,” said Allen Wynperle, president-elect of the Ontario Trial Lawyers Association. “How much is it actually costing insurance companies? We don’t know because there’s not enough transparency to tell us one way or another.”

The rate hikes keep coming despite a Liberal promise to reduce rates by 15 per cent by 2015. And they continued despite a 2010 move that saw the province cut benefits for minor injuries from $30,000 to $3,500 and deductibles were hiked to over $30,000.

“The industry is virtually unaccountable and all we ever hear is that they are losing money,” said Rhona Desroches of FAIR, a group that advocates for accident victims. “It's just their word for it and no way for the public, or even the government, to actually confirm where the dollars are flowing to.”

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