Car Insurance - The Total Loss

What is a total loss or write off? It arises where the cost of repairs to a car exceed the value of the car, taking into account the salvage value.

So lets say your car is badly damaged. This could have arisen from an accident, a fire, or theft damage. And it costs, say £5000 to repair it. If the value of your car is , say £5,500 and the salvage is worth £600 then it is cheaper for your insurer to total loss the car rather than repair it.

Suppose the salvage is only worth £400. The chances are they will still total loss the car. The estimated cost of £5000 to repair is based on a visual inspection and assessment of the damage. There could be more damage discovered if it were stripped down. So it would be regarded as a border line total loss.

Total loss procedure. As soon as it is clear that your car is going to be a total loss, your insurer will want the following things to happen.

1) They will want to move the damaged car into 'free and safe storage'. This is usually at a salvage dealer. The reason is simple. Garages have discovered there is easy money to be made. They won't get the repair job but they can charge your insurer just for keeping your car on their premises. Some charge extortionate daily rates that make car clamping fees seem like peanuts! Even the cheapest rates are similar to car parking fees in Central London. Insurers pay out millions of pounds each year for storage charges so they want to move your car FAST!

Because a few policyholders have caused problems and cost them unnecessary money they might even tell you they are going to move it in 48 hours rather than asking your permission. What has happened on occasion is that the salvage teams move so quickly that the salvage truck is collecting the car before they've even told you it is a total loss! Naturally this can be upsetting to some people.

But taking into account the reason, please be understanding! They are not disposing or your car, just moving it to save money. You might ask why you should worry about saving your insurer money? The reason is simple. The more they pay out on claims, the more you pay out on premiums. It is in your interest to help them save money.

My advice is - help them. Always agree to have it moved from a garage. If you refuse, they can insist you pay the storage charges from the point of your refusal.

Sometimes with an older car, it can be a total loss yet still be safe and legal to drive. It might have a low value and only some minor cosmetic damage. Often insurers will let you keep this at home whilst the next steps in the procedure take place, provided it is not incurring any charges.

2) They will ask you for the vehicle documents. That is the V5, registration document; MOT certificate if your car requires one; and possibly purchase receipts, service records, keys and details of any outstanding finance. They will ask for your Certificate of Insurance to be returned. They will need the original documents before they settle your claim. Copies to start with will suffice but will delay the process.

If you ask them why they want these documents, they will probably tell you they need to check they have the right model of the car, that it had a valid MOT and proof of service record to establish that is has been maintained. These are all valid reasons. But they also want to check out your claim for fraud. Official documents have several anti-fraud measure built into them by the issuing Government agency. A careful check on the originals will enable the claims official to establish quickly that these are genuine documents and not fake. If there is doubt, they can use forensic science equipment to validate the documents. You would have to be a very clever fraudster to forge successfully all these documents.

My advice is - let your insurers have the original documents as soon as they ask for them. Just sending copies delays your claim.

3) Whilst you are waiting for your settlement proposals, your insurers will be doing other things as well. They will record the claim on the 'motor insurance anti fraud and theft register'. (MIAFTR) This is a national data base that has been recording all insurance total loss vehicles and stolen cars since the early 1980's. It checks your car against all the information in the database to see if it has ever been the subject of an insurance total loss before, or whether it has been previously stolen and not recovered. It checks against your name and address; post code; your vehicle's registration number and VIN (vehicle identification number). If there is a match further questions will be asked of you and your insurer might go into 'fraud investigation' mode.

MIAFTR also automatically checks your car against the HPI (Hire Purchase Information). If you took out finance to buy it and you still owe money, it will be on this database. And your insurer will find it. So be honest and tell them about your finance. The finance company is the legal owner of your car. Any settlement must be made to them until the loan is paid off. Anything left over goes to you.

Similarly, your claim will be recorded on CUE (Claims and Underwriting Exchange). This happens automatically on all motor and household claims. Not all insurers subscribe but the vast majority do.

Problems arise where the outstanding loan exceeds the value of the vehicle. The insurance policy does not pay off the loan in full.

I recall a scheme for motor cycles. Young people went into a shop, bought a new motor cycle plus all the leathers, helmets and so on with finance against the vehicle. The interest on the loan was very very high. A few days later there was an accident and they would total loss it (or it was stolen). The value of the motor cycle was much less than the total purchase price plus the interest. It caused a lot of upset which was blamed on the insurer and not the stupidity of the motorcyclist for entering into such a bad deal with the shop.

4) Your insurer will be obtaining bids for the salvage. The more they can get, the less the final cost of your claim. There has been a lot of controversy about cars which have been written off finding their way back on to the road. Or being purchased by the criminal fraternity to aid their disguise of a stolen vehicle.

The Association of British Insurers (ABI) have issued a code relating to the disposal of vehicle salvage that meets current legislation as well. All member companies adhere to this code. The result is that most salvage is sold by insurers to reputable salvage dealers. If it is damaged to an extent that meets certain criteria, it will be issued with a code that requires the vehicle to be broken up or scrapped. Cars with less damage could still be repaired and put back on the road. See the section on retaining the salvage.

5) Once all these hurdles have been overcome your insurers will make a settlement proposal to you.

Their engineer will have looked up the trade publications to value the vehicle, amending these figures for the age, condition and mileage of your car. And his knowledge of the local car market. The final figure he comes up with forms the basis of the settlement value given to you. An excess might have to be deducted along with any outstanding finance.

Your insurer should make it clear to you precisely how much you will receive and explain any adjustments to you. If you pay your premium by Direct Debit, the chances are that any remaining premium will also be deducted from the settlement cheque. We shall come back to the subject of premiums in a moment.

6) When you have accepted the value (some insurers might require your signature to a document called a 'form of discharge') you will be sent a cheque.

7) Your insurers then own the remains of your car and, subject to legislation and those ABI codes, can do what they want with it. This will inevitably mean they will sell the salvage.

Next..... UK Car Insurance - Variations Of The Total Loss (Write-Off)