Result may be fewer totals, more repairs
Missouri may have found a way to put a dent in the airbag dilemma. The state passed an omnibus automotive law, Senate Bill (SB) 1233, in July, which, among other things, allows insurance companies to take airbag replacement costs out of their total loss calculation. The change may reduce the number of cars totalled in that state.
“This is good for consumers, good for shops and good for insurance companies,” says Don Border, a property and casualty claims consultant claims expert at State Farm Insurance. “By removing airbags from the estimate, a lot more repairable cars will fall below Missouri’s 75 percent salvage threshold, and they’ll get fixed instead of going through the recycling process.”
Before the law took effect Aug. 28, any car with damage exceeding 75 percent of its value to repair had to get a salvage title. The salvage title made it difficult to resell such vehicles, even if they were repaired. As a result, insurance companies would classify those vehicles as total losses and pay customers for vehicle replacement.
Under the new law, insurance companies can decide that airbags are not part of that repair estimate, which enables repairs even if the total cost exceeds 75 percent of the vehicle’s value.
“The example I like to use is a ’98 Toyota that’s in a fender bender, where the airbags deployed,” says Brent Butler, government affairs coordinator for the Missouri Insurance Coalition. “The car is worth about $7,000 and the repairs would be about $6,000 if you include the airbags. Under the old law the car would be totalled, but under the new law you could repair that car and return it to the customer because you exclude airbags and don’t have to get a salvage title.”
In the scenario Butler described, removing airbags from the loss calculation puts the cost of repairing the hypothetical Toyota at about $3,500, which means it would not be required to be retitled as a salvage vehicle. Because it could then be repaired and retain its original title, the insurance company would pay for the entire repair, including airbag replacement.
Not everyone sees the new law as being beneficial. “We think it’s better than the straight 75 percent, but we think it would be better to go on a case-by-case basis the way the market would, rather than to have a statute that creates an artificially low number and then you create a statutory exception to the statutory rule that shouldn’t have been created in the first place,” says David Snyder, vice president and assistant general counsel at the American Insurance Institute.
The law may be good news for shops in Missouri, however, because it means more vehicles will be repaired instead of totalled. In an interview with ABRN, State Farm’s Border says, “If the cost of repairs plus salvage value are less than the actual cash value of the vehicle, then the vehicle is repairable, but the threshold will often force a vehicle to be totaled in spite of that. Adjustors will still total vehicles where the economics dictate they should be totaled, but with this law they’ll be able to repair a lot of vehicles that have some superficial damage and airbag deployment that otherwise would push them over the threshold.”
Butler says the law gives customers and insurance companies more options, including allowing insurance companies to still get salvage titles. “A lot of customers want to keep their cars and it can be less expensive for the insurance company to pay for replacement instead of totalling the car,” he says.
Results of the new law are still unknown. Still, other states are tracking the law. Tom Alger of the Iowa Insurance Division says, “Our consumer affairs people think it’s very interesting, but because there’s no statement of interest by consumers, shops or the insurance industry pushing this, we’re not going to proceed with any legislative effort.”
While state laws about salvage titles and the requirements for assigning a vehicle a salvage title vary widely, the consensus among the 20 state insurance regulators ABRN interviewed is that the Missouri law would make sense in any state where there is a threshold for declaring a car a total loss or salvage.
In addition to airbags, electronics and tires also may be excluded from the total loss calculation under the Missouri law.
“Sound systems… are not integral to the operation of the vehicle and are subject to customization so the cost to repair or replace should be excluded from the constructive total threshold,” says David Medvidofsky, of the Chartered Property Casualty Underwriters (CPCU) Society. “In other words, why total an otherwise repairable $2,000 vehicle with $1,000 in damage just because the owner installed a $500 sound system? For tires, the thought process most likely (in my opinion) follows a path that says that either depreciation is too great, or that they are subject to customization as well so including replacement may make the threshold calculation too easily attained.”
Border believes the Missouri law gives owners more control if they don’t want to total the vehicle and if the insurance company agrees that it’s worth repairing. “People have a favorite car and with this law they know they can have it back mechanically sound and safe,” he says.
