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Insurance companies undervaluing "totalled" cars?

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There’s a great article on Insure.com about the way in which many insurance companies decide just how much your “totalled” car is worth. Disclosures in recent litigation have revealed that (gasp) many insurance companies tend to stray away from the standard Kelly Blue Book and instead use value databases that result in much lower car values. Apparently, to the shock of…well, no one, this is done intentionally to avoid having having to pay more money to motorists who have lost their vehicles in an accident.

From the article at Insure.com:

Unlucky folks who’ve had their wrecked cars totaled often note that their insurance company checks for their totaled cars were much lower than they expected. The Kelley Blue Book and National Automotive Dealership Association (NADA) Guide — references that we’ve been led to believe are definitive sources of used-car values — often show higher car values than what people received from their auto insurers.

That’s because insurance companies subscribe to private databases of car values, from which they pull dollar amounts for cars. So, while you may be leafing through Kelley Blue Book to find the value of your 1996 Honda Accord, your insurance company is looking at a proprietary database to which you don’t have access. The main car-value database competitors are: ADP Claims Solutions Group (which uses data from 1,200 dealers and thousands of automobile trade publications), based in San Ramon, Calif.; CCC Information Services, based in Chicago; and Mitchell International out of San Diego (which uses an average of the Kelley Blue Book and NADA values). But these databases, and in particular the one from CCC, can allegedly be used for fleecing you out of the real-world value of your car.

Internal Farmers Insurance Co. documents submitted in the discovery process of pending litigation (including the pending case Buratovich vs. Farmers Insurance Exchange and Farmers Insurance Co. of Arizona and CCC Information Services Inc. case out of Arizona), allegedly show how these databases can be used by insurers for a systematic pattern of “ratcheting down the price the insurer has to pay a policyholder for his totaled vehicle,” according to Stephen Ryan, an attorney based in Scottsdale, Ariz. Ryan represents the plaintiff in Buratovich vs. Farmers, et al. and has investigated CCC for an article he wrote for Trial magazine in June 1999. He also represents three other plaintiffs in similar car-value cases, also filed against Farmers Insurance.

Read the full article here.