Post-Crash Value

Daryl Angier

Just when you thought it was safe to go back out on the roads, along comes the next issue to trouble the auto insurance market. The latest bogeyman is diminished value, or accelerated depreciation. This is the amount of potential resale value for your car that is lost after it has been in an accident, which invariably happens even when the vehicle has been fully restored. The issue first appeared a few years ago when it became law in Canada to report any accident in which your vehicle was involved. But a recent episode of the CBC consumer affairs program Marketplace shows that the issue may be gaining more momentum.

Currently, no insurer in Canada offers coverage for diminished value. However, in the Marketplace episode “Crash and Burned,” host Tom Harrington highlights the case of Peter Phan, a driver in BC who has launched a lawsuit against the Insurance Corporation of British Columbia (ICBC) to make it pay for the $8,000 in value he lost after his car was rear-ended. Harrington also interviewed John Oxendine, the former insurance commissioner for the state of Georgia, where insurance companies are now required by law to assess diminished value in any auto claim. “We haven’t seen any significant change in insurance rates because of it,” said Oxendine for the program.

Could coverage for diminished value come to Canada? Maybe, says James Bonnay, an industry consultant who was also interviewed for the Marketplace segment and who spoke to Canadian Insurance Top Broker. Bonnay thinks Phan has a good case and could win. The problem, Bonnay notes, is how to calculate diminished value and how much to charge for it. “The longer you keep the car, the less indemnity will be required. In fact, if you keep the car until the wheels fall off, you don’t have any diminished value,” he explains.

Bonnay speculates that it could be included under the direct compensation section of an auto policy. “But whether it’s built in or added by endorsement, it would have to attract additional premium,” he says. “You can’t give away coverage for nothing.”

Forcing insurers to provide coverage for diminished value could be particularly problematic in Ontario. Since the implementation of reforms to the Ontario auto product last September, only a handful of drivers have opted to buy up the additional coverages. I find it hard to envision car owners in the province choosing an option that would send their sky-high premiums even higher.

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Copyright 2011 Rogers Publishing Ltd. This article first appeared in the March 2011 edition of Canadian Insurance Top Broker magazine.

This story was originally published by Canadian Insurance Top Broker.