Sunday, March 27, 2011

Customer should know … in event of major car loss

Insurance claim process should be known to the INDIAN customer in the event of claim to enable him to get his legitimate insurance claim out of an insurance claim and more so in the event the vehicle having suffered major loss, wherein Insurers and Surveyors will be negotiating for settlement of claim and informing you of insurance related terms as Depreciation, Total Loss, Constructive total loss , IDV, Net of salvage, Cash loss settlement and salvage value .

In India the car losses, for major losses if considered on total loss basis by insurers market value of the vehicle is not considered ,but the concept of IDV ( Insured Declared value) is taken and the customer in event of total loss can claim full insured value of his car as per IDV. The criteria of consideration of claim on total loss basis is subject to condition that if the vehicle has suffered loss more than 75% of the insurers liability on repairs basis based on IDV of vehicle. In case the vehicle is Total Loss then the insured is paid the full IDV and he has to get the vehicle salvage shifted to the insurers desired premises and has to transfer the ownership rites in favour of the insurers or has to get the registration of the vehicle cancelled from the registration authority ( RTO) as directed by the insurers.

Constructive Total Loss is another type of settlement, when the insurers settle your claim as Total loss. This mode is generally adopted when the IDV of the vehicle is less than its market value and liability of insurers on total loss basis is in interest of insurers. In such cases, if IDV less salvage value is lower than the repair liability such mode may be adopted.

Cash Loss Basis is another way of settlement of claim and in such cases the insured is paid repairs cost less some percentage as agreed by the insured and insurers mutually and is generally about 30% . In this mode of settlement the settlement is done prior to vehicle being repaired and the insured after settlement may get the same repaired in any manner and at any workshop and does not have to prove that that the vehicle is repaired and does not have to submit the bills of repairs. Such mode is opted mostly in case where insured claims as per authorised workshop estimates and after settlement on cash loss basis may get the repairs carried out at some local workshops with used parts and depends on the financial status of the insured.

Cash Loss Basis Net of Salvage.. in this type of settlement in event of major loss the settlement is on total loss basis and salvage is also retained by the insured. Thereby the insurers pay the customer the IDV value less salvage value of the vehicle and any other additional deductions as per the policy. Thereafter the insured is free to either repair or dispose off the vehicle and does not have to submit the bills of repairs or transfer the ownership rites to the insurers.

IN INDIA at present many cases are mostly being settled on cash loss net of salvage basis and mostly by the private insurers.


There are some more factors operative in settlement on cash loss net of salvage basis. With their own pros and cons.
On very few occasions that the insured may agree for settlement on cash loss net of salvage basis in its true spirit. Thereby he after settlement will retain the salvage himself and will get the vehicle repaired by him-self from some unauthorised workshop and thereby make the said mode of settlement beneficial for him as otherwise if he get the vehicle repaired from authorised workshop then the said mode will definitely be a loss making settlement for him.
However on most of the occasion the said mode of settlement is adopted in reports of insurance companies and is consented by the insureds , In practice in such cases the biggest hurdle is that the customer/ insured is not interested in retaining the salvage and either the insurers or the surveyors facilitate to arrange for the salvage buyers and thereby the said hurdle is overcome.

CAUTION ....  As per section 55 of MV Act, for all vehicles which are destroyed or rendered incapable of use the RCs need to be cancelled. 
The said duty is of the owner of the vehicle. If owner retains the vehicle and get it repaired on his own then there is no problem, but when he sells the vehicle salvage then he should take preventive measures against misuse of the salvage by buyer. The customer should demand from the insurers / surveyor regarding certification confirming the salvage value deducted by them and also importantly confirming that the value so deducted was considered for disposal with or without documents. The same will have bearing on the future sale of the vehicle. If they deduct the value without the documents then one should get the RC cancelled and dispose the wreck and should not get it repaired. If the value quoted is with the documents then customer may sell the salvage with documents if he so desires after taking some preventive measures as discussed in a related article in this blog.

Many a customer of private insurers do sometimes claim that they were paid the reduced IDV which is violation of the insurance policy in INDIA. They complain that collective value paid to them for the salvage and insurers is less than the IDV and they had given the consent for the same for settlement purpose. This complain is mostly reported against private insurers in INDIA but the same is not the true representation of all the cases.

CASH LOSS NET OF SALVAGE BASIS is also a very good way of settlement of claims and is mostly helpful to the customers as explained in major loss cases.

In event of major loss if the liability of insurers is less than 75%of IDV then the option available is for repairs basis, but there is mostly a vast difference in market value and the IDV as IDV is a scaled value system for all type of vehicles. In many cases it is not adviseable as said repairs will not be economical for the insured as even after the repairs the market value may not be worth to bear the burden of depreciations etc. Also in many cases after the accident the insured does not want to retain the vehicle for phycologial reasons in event of major loss. In such cases he may propose to insurers that his claim though not falling under Total loss be settled on cash loss net of salvage basis on reduced IDV value thereby making the settlement for insurers in their interest and changing their decision from repairs basis to to cash loss net of salvage basis.


IDV is Rs 3,00,000.00
Repairs liability Rs 1,50,000.00
Depriciation on Repairs basis to be born by insured Say Rs 40,000.00
Salvage value Rs 1,00,000.00 on Total loss basis.
In above case the insurers will insist on repairs basis and say if the market value of the vehicle after repairs will be Rs 2,50,000.00 then the customer should try to get his vehicle settled on reduced IDV basis as consented mode of settlement.
Here if the insured proposes to the insurers that he is ready to settle his claim on cash loss basis for Rs 2,50,000.00 or say Rs 2,40,000.00 and the salvage be arranged for disposal ( Provide facilitation for salvage disposal) this will make the liability of insurers on cash loss net of salvage basis as Rs 1,50,000.00 or say Rs 1,40,000.00 respectively for the above values. This will now be in interest of the insurers and they can not ignore the said proposal of the insured. Here the insured is also not at loss as he assumes that he had to bear depreciation part only.

Cash loss net of salvage basis on reduced IDV basis on consented basis is very effective way of settlement of losses, Any forced settlement by this system  on the customer should be avoided and customer should be educated about this mode of settlement also and if he proposes on his own will for the said mode then only this mode should be adopted.

More to come in forthcoming posts……


INDIAN Insurance companies luring the customers with loud words 



All motor policies are guided by the terms and conditions and every insurers policy wordings are similar , however a clever slogan and service provided by indirect means are really attracting large number of customers to the insurers giving such slogans.At present almost all the insurers are singing in the same tune. The customer should however know the inside story of such facilities being given to him and should be aware of his legal rights and thereby should be able to avoid any cheating by inter-mediator.


A big NO is the correct answer, but still the customer is getting benefit out of such proclaimed quotes by the garages and the insurers.


Customer approaches the preferred  garage of the insurers and gives details of his loss to the garage and submits the documents with the garage and all the formalities of lodging the claim with insurers, appointment of surveyor loss assessor or insurers in-house inspector , survey of vehicle and finalization of the claim is handled by the garage. Even the settlement is negotiated by the garage on behalf of the customer. Customer however has to pay the garage the deductibles like deprecation , excess clause applicable under policy and for the labor and spares not allowed by the insurers.

Customer feels happy that he had to pay very small amount for which he had to bear anyway and further the claim has been settled hassle free and saves his own time and energy.


Every part of the above is fine and in the interest of the customer, but unaware customers are many times being cheated by the workshop / workshop personnel even without the knowledge of the insurers and in some cases even by workshop owners.

Since the customer does not know the settlement arrived at between the insurers and the garage, and relies on the depreciation calculated and charged by the workshop which in many cases may be more than the what customer had been liable and what the insurers had settled.

Another key area is salvage value deduction by the garages. Almost all the garages deduct for salvage value of the parts replaced from the customer also and the salvage remain with the garage and thereby garages get benefited for the same. Such value is generally 5% of spares costs. In fact as per the general agreed conditions by the preferred garages is that they will retain the salvage and 5% of the salvage value will be deducted and the garage will recover the same by disposal of the said salvage and no where it is conditioned that the salvage value is to be recovered from the customer. The Garage may deduct the same only in cases where the owner takes possession of the salvage.

Towing & Recovery Charges  ...... Many a times customers use the services of recovery vehicles and for towing the damaged vehicles to the workshop and thereby as per policy are entitled for up-to maximum limit set for the said services. The customer has to submit the bills of said services obtained with the garages to be further submitted with the insurers, but at time of finalization of customers liability, the garages do not reduce the said entitled amount to the customer and only very vigilant customer point it out and get the said amount adjusted.

Customer should always demand for a proper receipt for the amount paid by him to the Garage falling under the insurance claim lodged and should also try to obtain the details of calculation carried out by the Garage. They can later check with the surveyor loss assessor or the insurers for the details of his claim settled and same should be in relation to the amount paid by him to Garage. In case they find they had been overcharged by the garage they cam lodge complaint with the insurers and garage and recover any excess amount charged by the garage.


Insurers are on their part are not giving and cashless service in reality. In actual the cashless facility is being given by the garages and it is their discretion to extend the facility to the customer. They provide the cashless facility to the customers in actual on voluntary basis. They follow the claim procedures laid down by the insurers and charge the part payment from the customer ( customers share on account of depreciation, excess clause etc) and the balance insurers liability is claimed from the insurers by following the proper procedure including survey and assessment and even negotiations. In case the liability is disowned  by insurers on account of discrepancy in claim documents or violation of policy terms and conditions at time of final settlement of the claim, the garage is at loss and the garage thereafter may or may not recover the said loss amount from the customer. Mostly the same will be bad debt only.


The preferred garage status gives many competitive business edges to the garages and few of them are marked as

  • The preferred garage status brings more jobs for them as every customer wants cashless service and like to get the repairs carried out at such preferred garages.
  • The preferred garage status allows workshops to negotiate and make deals with the insurers for settled labor and painting charges and thereby benefit. Also since the depreciation  etc are not applicable on labor charges, thereby the customer does not questions about the charges being charged nor seek any discount from the same. In general repairs( Non cashless cases) it is customary for the customer to seek some discount for the labor and painting charges and the garages have to oblige with some discounts to satisfy the customer for better business prospective.
  • With preferred status many a garages are utilized by the insurers for seeking insurance policies and thereby the garages give insurance business of new and renewal to the insurers and in turn earn commission on policies. This allows the garages to earn more and to provide all services to their customer under one roof and thereby the customer remains with them for all his needs.
  • Once a garage is established he is at better position to negotiate with the insurers and always keep the  sword hanging on the insurers at time of negotiations with threat that in case his demands are not met he will shift the insurance premium to another insurers who are always ready at his doorsteps. The insurers weakness is due to their laziness and the market trend that every one is looking to make arrangements for preferred garages.
  • One major contributor for the kitty of preferred garages is that they can lodge the claims on behalf of the customer. The vehicles coming to garage for routine jobs contribute for additional jobs also. How ? ........ A vehicle coming for say servicing is inspected by the workshop personnel and a minor accidental job is noticed and they inform the customer of the same. In normal circumstances the customer may not claim for the same, but the garage suggests for lodging claim and assures that the same will also be repaired in same time as for normal job and since the job will be hassle free the customer mostly will consent and thereby the garages create additional job for themselves. Some may say that it is just a perception and nothing more, still it has its some bearings.
  • The above are normal benefits for the preferred garages and there are many more hidden benefits thereby luring the garages for seeking preferred garage status. Garages with moral hazard are also there and is difficult to identify as they work very secretively and cover their tracks. 
With so much benefits the garages do take the risk of loosing some amount in some cases which are denied by the insurers, but mostly such cases are also finally settled by the insurers in interest of their own business and very few remain unsettled.

The views expressed are for information purposes only and customers having experienced any such case may share the same for information of others.