Recent studies show the proportion and frequency of total loss in collision repair is increasing. According to the Q3 2024 CCC Crash Course report, 21.5% of claims YTD 2024 are deemed a total loss -- a 79% increase in total loss processing frequency since 2013. CCC’s research also shows current year and newer electric vehicles (EVs) are slightly more likely to total (9.8%) than internal combustion engine (ICE) vehicles.
During the 2024 SEMA Show in November, AkzoNobel Senior Services Consultant Tim Ronak and Services Consultant Tony Adams shared insight on monetizing the total loss process.
Adams began the presentation by defining total loss.
“Typically, it's when the estimated monetary cost of repair exceeds a predetermined threshold percentage of the determined pre-loss monetary value of a vehicle,” Adams explained.
Ronak said total loss processing has undergone a remarkable transformation over the past decade.
“Once a negligible endeavor, it has evolved into a complex, labor-intensive and resource capacity demanding activity,” he shared.
“The landscape is really changing and it's changing quickly,” said Adams. “We have to adapt to process these types of claims profitably.”
This involves meticulously accounting for the documentation, administrative and storage tasks involved to ensure accurate billing.
Ronak said for the last 30 years, total loss processing has typically been part of a contracted arrangement shops have with vendors.
“A lot of these activities were included as part of that relationship,” he noted. “What has happened is that vehicles and thresholds have changed.” Many attribute the growing prevalence of total loss assessments to the rise of technology in cars.
Ronak cautioned shop owners to be aware of how much money processing total losses cost their business.
“If you're part of a [direct repair program] DRP and choose to provide this as part of your service, that's great, but clearly determine what it costs you,” he advised. “If you're not going to be a DRP, understand what steps you have to take to protect yourself.”
Understanding the Process
Adams stressed the importance of understanding the total loss process and mentioned the stages involved regarding first-party claims.
Shop Repair Contracts: Adams recommended having repair contracts in place that outline the charges. These include storage and administration fees. Adams also suggested shop owners consider having a lawyer draw up the contract to ensure consumers are protected as well as their own interests.
Initial Damage Cost Assessment: This involves a detailed inspection to identify and document all collision-related damage. Adams said it comprises comprehensive disassembly to expose potential damage and a thorough evaluation of structural, mechanical, ADAS functionality and cosmetic impacts. The goal is to approximate the cost to return a vehicle back to its pre-loss condition according to OEM procedures.
Vehicle Valuation: To ascertain the pre-accident fair market value, Adams said a comprehensive process is followed. It entails examining the car’s history, condition, mileage and verifiable recent sales data, as well as state regulations. When there is disagreement on value, consumers can invoke the appraisal clause, if their carrier policy includes one, to ensure they feel treated fairly.
Total Loss Determination: Insurers then evaluate the estimated repair costs against the vehicle's pre-accident value. Typically, it is classified as a total loss when repair costs exceed a certain percentage of the value.
Communication with Insurance: Repairers can spend significant time preparing detailed estimates and supporting documentation to submit to the insurance provider on behalf of customers. Adams said dialog is maintained to address any questions or concerns during the process.
Final Billing/Consumer Payout and Vehicle Removal: When and how the consumer ultimately transfers ownership of the car is determined at the final stage.
Common Procedures & Billing Items
Adams and Ronak shared some common procedures and billing items related to processing total losses.
Vehicle Towing and Storage: This can include towing services to and from the repair facility, within the repair facility, calculating and billing storage, lot access fees, gate fees, waiting time and supervised access for third-party tows from the lot.
Ronak suggested determining the reasonable fees in the market, considering any state regulations regarding storage, and making the distinction between working on the car versus the waiting time for approval and instructions to move ahead. He said most insurance policies require an insured to immediately secure/protect a vehicle from additional physical damage after a loss.
“This contract point is the supporting defense for charges to prevent additional damage by sealing the vehicle openings, electronic and fluid systems from water, corrosion, overspray and other debris,” he noted.
Diagnostic and Disassembly: Considerations are pre-repair scanning and disassembly steps, access or removal of components, diagnosis of scope of damage, and documentation of measurement and structural deformity.
OEM Required Pre-Disassembly Procedures: Possible inclusions are accessing, researching, interpreting and performing OEM and other procedures to prevent additional damage during disassembly, and identifying the precautions necessary depending on the powertrain.
Parts and Labor: Adams shared examples such as restocking fees for parts authorized to be ordered before a total loss determination, staff labor time to remove customer belongings, communicating with the insurer and customer, disassembly and damage inspection, packing up and storing removed components and partially reassembling a car for transport.
Ronak said labor is typically calculated at 50% of the remove and install (R&I) time for all components removed.
“The goal is to maintain facility technician labor efficiency for total loss activities,” he explained. “The days of a flat x.x labor unit offer are no longer valid when vehicle complexity precludes a simple time limit on disassembly.”
Administration: These could be fees for processing and preparing total loss paperwork and communicating/negotiating with insurers on behalf of customers. This includes all electronic and verbal communication along with documentation of that correspondence.
Disposition of Salvage Vehicles: Adams noted the procedures and regulations when dealing with vehicles declared salvage, including documentation of salvage title requirements and billing for hazardous waste disposal and reclamation fees. Ronak reminded attendees to understand state and county rules regarding lien sale, abandonment and storage laws.
Legal Terms to Know
Ronak then discussed some legal terms that can be helpful to know during the process -- bailment, replevin and abandonment. He explained that bailment involves the transfer of assets or property from a bailor who temporarily relinquishes possession but not ownership, to a bailee.
“The bailee must intend to and actually physically possess the bailable chattel or asset,” Ronak said.
Three elements are generally necessary for the existence of a bailment: delivery, acceptance and consideration. To create a bailment, actual possession of or control over property must be delivered to a bailee.
By having documentation and a repair contract in place to show a shop has bailment, Ronak said it insulates the business from having other people make decisions about the vehicle outside of the custody of the asset.
“This is a pretty important piece of understanding, especially in total loss, because recently insurers have been using something called replevin to be able to abandon a car or deny storage fees they never authorized when they transfer ownership of the vehicle due to a business not adequately establishing custody through a bailment contract,” he said.
He described replevin as a legal remedy that enables a person to recover personal property taken wrongfully or unlawfully and to obtain compensation for resulting losses.
“To win a court action, a plaintiff must provide evidence that they are the rightful owner of the property in question and that it was taken without justification or consent,” he said.
Ronak stressed the importance of having a repair contract to help secure the shop from replevin claims.
“When an insurer totals a vehicle and you don't have adequate contracts in place, they will use replevin to say that anything the owner agreed to is null and void because it's their car,” said Ronak. “However, if the owner has created a bailment with you, the insurer has no right to do that.”
Ronak also talked about the abandonment of a vehicle and used California cars as an example. According to California Vehicle Code, no person shall abandon a vehicle upon any highway, or upon public or private property without the express or implied consent of the owner or person in lawful possession or control of the property.
He said that low-value salvage vehicles are at risk of abandonment due to the high disposal costs compared to the remaining potential salvage value.
“However, given that new or used vehicle values are falling, the consequences are much lower value cars,” Ronak noted. “That means when the storage bill gets up to $4,500… they may just say to keep the car because it is not worth anything to them, and it will cost them more to pay the fees, tow it and get less money back for the reimbursement than what they had into it.”
Addressing Billing Challenges
Ronak outlined some of the billing challenges during the total loss process. The single biggest one, according to Ronak, is a lack of adequate repair contract authorizations and documentation.
An additional challenge he pointed out that shops often deal with is disputes over labor rates, labor procedures and other related costs, as well as underpaid claims. Others include legal considerations, insured customer recourse within their policy, and vehicle abandonment.
“In all of these instances, it's about the contract you have in place,” Ronak noted. “It’s an absolute must to have.”
He shared that some insurers use artificial intelligence (AI) to identify what they will reimburse.
Ronak and Adams recommend maintaining detailed, precise records of all procedures performed, materials used and time spent with clear research supporting all pricing and procedures billed.
“Proper documentation is crucial for supporting billing claims and negotiating with insurers,” said Ronak.
Best Practices for Billing & Payment
Ronak talked about some key success factors affecting billing and payment, such as clearly and consistently applying billing procedures.
“You can't charge one insurer one price and another insurer another price without future consequences through subrogation AI analysis,” he noted. “Being consistent in your pricing and uniform across a marketplace is what's important.”
Collaborating with insurance adjusters through consistent, clear communication is key.
Ronak and Adams also stressed the importance of keeping customers informed throughout the total loss process about what is being done to the vehicle outlining the costs, insured insurance negotiations, current approval status, and their responsibilities and rights.
“There should be zero conversation between you and an insurer that doesn't involve the customer,” said Ronak. “Transparent communication builds trust and reduces delays in payment.”
“That's really what our job is in all of this; it is to be a consumer advocate and help them understand what the process is, so they are made whole,” added Adams.
Ronak advised leveraging parts management tools to track parts orders, returns and restocking fees accurately.
“This ensures accurate billing for all parts-related procedures when processing returns,” he explained.
Shops can also use repair tracking software to streamline billing, automate calculations and generate comprehensive estimates and invoices.
“This promotes consistency and reduces errors,” he noted.
While Ronak and Adams are resources for their customers, shops can also investigate third-party training and tools outside of the AkzoNobel Acoat Selected program through SCRS, DEG, Elite Body Shop Solutions and other industry vendors. Collision repair contract templates are offered by Erica Eversman for a fee at www.vehicleinfo.com.
In closing, Ronak said attention to detail and proper documentation is essential for maintaining profitability and compliance in collision repair.
Stacey Phillips Ronak