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Should Have Known Betterment

Betterment. Sounds like a new flavor of gum from Wrigley’s. Well, to car owners and collision shop managers and owners, betterment might not be so sweet, and their attitude toward it hasn’t been so carefree.

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So if betterment isn’t a gum flavor, what is it? Well, suppose a car with 60,000 miles is in an accident. The engine is badly damaged and replaced with a new one. The insurer figures what an engine with 60,000 miles on it is worth and subtracts this total from the value of the new engine put in the car. The customer then pays the difference, or depreciation, because it’s assumed the car is now worth more.

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How is this “depreciation” calculated? In a simplified case of an engine, the insurer can say its average life is 100,000 miles. Replacing an engine with 60,000 miles with one that’s brand new means 60 percent of the new engine cost is to be offset by the customer. Suppose a new engine costs $10,000. The customer pays six grand for the engine, plus the deductible. This depreciation amount is assessed to the customer, with the rationale that the new engine makes the car worth more than it was with an engine with 60,000 miles. The car is considered better, hence betterment.

So what’s the problem? Doesn’t this sound logical?

To put the car back into the condition it was prior to the accident, you’d need to locate an engine used for 60,000 miles. Good luck. It’s not like there’s a fleet of cars out there driving around for the sole purpose of donating parts when vehicles with comparable mileage are wrecked.

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Besides being illogical, betterment isn’t on the common law books as being proper either. Still, it somehow became a custom.

Many customers and shop owners see the practice of betterment as downright unfair. How can an insurer determine the car is worth more after an accident, when no appraisal is done? Often the answer from insurers is, “That’s the way it’s always been done.”

Apparently this answer isn’t good enough anymore, as indicated by a recent Texas class-action suit against 16 insurance companies for their practices of betterment. Even more recent is a suit brought against Traveler’s Insurance in Rhode Island.

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Even though a number of insurers have said they’ve stopped the betterment practice (State Farm and Allstate, for example), it can still affect the industry. And what effects will such lawsuits have on the way shops do business? Well, for one thing, as the issue gains visibility – like aftermarket parts and, to a lesser degree, diminished value have – you as shop owners could likely field betterment questions from customers. They’ll want to know what betterment is exactly, and more importantly, how they can avoid paying it.

But what if a customer is told to pay for betterment and he doesn’t want to – “Hey, wasn’t I paying premiums so they would compensate me?” What avenue can you tell him to take? Suggest he write a letter to his insurer, similar to the one in the gray box.

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The letter, originally printed in “Beyond Parts & Equipment,” was letter adapted from the ideas of WreckChecks Inc. founder Jim Lynas. The letter is effective because it puts the ball in the insurer’s court and displays the customer’s understanding of the betterment concept. The insurer knows it’s difficult to prove a new item increases a car’s market value, so when they’re asked to do so, they may just forget about the whole betterment charge in that particular case.

In fact, if the insurer is saying the value of the car is worth more, then they’re saying the value – and not parts – is what’s insured. By using this letter, the customer is asking them to prove the car is worth more, or at the least, repair the car to pre-accident condition – not pre-purchase condition.

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Mike Lawrence is associate editor of BodyShop Business.

Betterment Customer Letter

Dear (Insurer)

I recently received notification that I would be charged betterment for certain repairs to my damaged vehicle.

I don’t understand how your company can determine that the value of my vehicle after repair will be more than it was prior to the accident when the repairs aren’t yet complete. It’s my understanding that most vehicles incur diminished value from being involved in an accident. Given that fact, please explain to me how your company intends to address that loss in value and how it will be calculated.

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I don’t want my vehicle “better” than it was before the accident because I won’t pay the difference in cost; therefore, just make it as good as it was prior to the accident.

[If you are the insured, add this paragraph]: My policy states that my vehicle will be returned to pre-loss condition, which is exactly what I’m asking. Therefore, please, simply restore my vehicle to its exact condition and value before the accident. I plan to have my vehicle inspected by a professional DV expert for value and repair quality after repairs are complete.

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[If you are a claimant, add this paragraph]: Your insured’s duty is to restore me and my vehicle to its pre-loss condition and value, thereby making me “whole,” and that’s all I’m asking. I want nothing more or less than that my vehicle have the exact condition and value it had before the accident. Please be aware that I plan to have my vehicle inspected for value and repair quality after repairs have been completed.

I want my car repaired as quickly as possible. I look forward to your quick response.

Sincerely,

(Customer)

Letter reprinted courtesy of BP&E.

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