Why is an Insurance Company Buying my Brother's Wrecked Vehicle?

[Seb22]

So, a little background, my brother was in an accident, not at fault. He's getting an insurance payout (from the company that insured the person who hit him), but they're taking his truck. (not a problem for him, as he's getting more than he payed for it).

My question is, why are they taking the vehicle? I assume that my brother had a choice in the matter, and that he gets more if they take the truck. But why do they want it?

Is it some legal requirement that they offer to buy the vehicle under certain circumstances? Are they going to restore it and put it back on the market? I haven't ever scrapped a car, but I doubt they'll make up the difference in what they payed by scrapping the vehicle.

Maybe there's some subsidy for getting unsafe wrecked, or maybe just old, vehicles off the road?

Does anyone here know?

 

[VolAgent]

Because the short and long of it is, they bought his truck.

It sounds like the damage to his truck was sufficient for it to be considered a total loss. Meaning, it would cost more to repair it than the vehicle is worth (its not quite that simple, but close enough for this conversation). So they are buying his truck from him for what it was worth before the accident, per their calculation.

Yes, he could choose to keep the truck, however it would now have a salvage title, meaning it would be much more difficult to insure. Also, the check to him would be reduced by the residual value of the truck.

Most likely the truck is headed to the parts yard to be used for parts to repair other trucks and the remainder will be scrapped.

It sounds like he lucked out in their calculation of its value. I had that happen to me as well, my wife was in an accident where the other driver was at fault. The company offered me much more than I thought it was worth or even KBB thought it was worth. I gladly took the check and gave them the keys and title.

 

[Seb22]

Yeah, there was something about a total loss, but why does the insurance company care? Why not just make him keep the truck and wish him the best of luck in finding a new vehicle?

 

[VolAgent]

Yeah, there was something about a total loss, but why does the insurance company care? Why not just make him keep the truck and wish him the best of luck in finding a new vehicle?

Because it is the right thing to do? Why leave him with a severely damaged and totaled truck and a check for the rest?

I know personally, I would have been pissed had I been left with my undriveable vehicle and a check for the remainder.

It is better for everyone this way. Your brother gets a check and can go get a new vehicle without having to worry about the old one. The insurance company resolves the claim without causing bad will, and they are better able to dispose of the vehicle and try to keep it from ending back up on the road.

 

[Seb22]

I never said that it wasn't the right thing to do, but large corporations tend to be driven by profits, not morality.

So, I'm guessing that there's either a law or a subsidy, or the insurance company expects to make more money from scrapping the car than it payed out. The latter seems the least likely.

Maybe I'm too cynical, but I'm skeptical that any large profit driven entity would do anything purely out of good will.

 

[InsCommentary]

I never said that it wasn't the right thing to do, but large corporations tend to be driven by profits, not morality.

So, I'm guessing that there's either a law or a subsidy, or the insurance company expects to make more money from scrapping the car than it payed out. The latter seems the least likely.

Maybe I'm too cynical, but I'm skeptical that any large profit driven entity would do anything purely out of good will.

The insurer has a contractual obligation to pay what their insured owes third parties in tort. This isn't a matter of goodwill but rather law. The carrier is regulated under Unfair Claim Settlement Practices laws and subject to civil suit by the trial bar. It's possible to do what is legally required AND do what's right. Insurers do it every day.

 

[adjusterjack]

Yeah, there was something about a total loss, but why does the insurance company care? Why not just make him keep the truck and wish him the best of luck in finding a new vehicle?

Because the insurance company recovers part of the the claim payment by selling it to a salvage company and can often recover 10% or 15%.

The claimant has the option of keeping the vehicle and getting a settlement reduced by the salvage value but then ends up with a salvage/rebuilt title.

 

[Josh]

I never said that it wasn't the right thing to do, but large corporations tend to be driven by profits, not morality.

So, I'm guessing that there's either a law or a subsidy, or the insurance company expects to make more money from scrapping the car than it payed out. The latter seems the least likely.

Maybe I'm too cynical, but I'm skeptical that any large profit driven entity would do anything purely out of good will.

It's not a subsidy, it's a transaction. If the insurance company is paying the whole value for the car, then they should get the car. Think about it like this:

Before the accident you have a car worth 10k.
After the accident, it costs 9k to fix, so rather than fix it they give you 10k for a new car. If the salvage value is 2k, then if you keep the car you would have effectively 12k of value when you only started with 10k.

Alternatively, carriers will let you "buy back" the vehicle if you really want to keep it. In using the example above this would mean you take 10k from the carrier and then pay them 2k for the car so. Ow you have 2k of salvage and 8k from the carrier which puts you back at the 10k you were at before the accident.

The purpose of insurance is to put you back where you started, not improve on where you were before the accident.

Is that more clear?

 

[Web320]

No subsidy or profit game involved. The insurance company has indemnified your brother (made him financially whole again - actually better according to your initial post) so the truck now belongs to the insurance company to do as they please.

I can assure you that the insurance companies are not viewing Houston as a means to turn a profit on salvaged vehicles.