Car-Rental Firms May Replace Insurance With Higher Rates
Car-rental companies soon may stop pressuring customers to take out collision-damage insurance. In fact, they may not be offering the insurance at all before too long.
The change in policy won’t be the result of the car-rental firms deciding that they make too much money. It is because the little rental firms have beaten the industry’s giants at their own game.
Rental-car companies are planning to replace the controversial collision policies with across-the-board increases in daily rental rates.
The proposed move is generating a controversy of its own and giving some insight into how the rental-car companies make their money.
On the surface, it appears that rental-car revenue is generated by the simple payment of fees for use.
Subsidizing Non-Buyers
The realities of the industry are quite different. In the view of the rental firms, customers buying collision insurance are subsidizing those who don’t.
“Rental-car companies are not going to stay in business charging $19 or $20 a day for the use of a $12,000 car,” said Alan Kay, a Washington attorney serving the American Car Rental Assn.
The association represents some 600, mostly small and independent rental-car companies nationwide.
The insurance waivers, which shield rental customers from liability for damages, along with other fees, such as refueling charges, are used to offset the companies’ operating costs and increase their profits, Kay said.
“(The insurance is) part of the overall aspect of the pricing of the vehicle,” Kay said.
But an increasingly loud chorus of critics, led by the National Insurance Consumers Organization (NICO), is charging that the policies offer little value for the money--an additional $9 to $13 a day on most rental contracts.
Consumers Hoodwinked
Moreover, consumers often are hoodwinked into thinking they must take the insurance as part of their rental contracts, according to NICO director Bob Hunter.
The Hertz Corp. couldn’t agree more.
The policies are giving the industry a black eye because of “all of the intimidation and coercion and nonsense involved in their sale,” said Hertz spokesman Joseph M. Russo.
The whole business has gotten out of hand “because smaller companies have been using (the policies) to subsidize their lower rates,” Russo said. The result is that big rental companies, such as Hertz, are losing business because potential customers run to smaller competitors “only to find that they really are paying a higher rate” when the cost of the waivers is figured in, Russo said.
So, Hertz, Avis and National are appealing to state legislatures to strip the waivers from rental agreements. The California Legislature is considering a proposal to do just that by 1990.
Consumer groups generally applaud the movement to dump the waivers, but they object to the price increases that would probably take their place.
“It’s a rip-off, an absolute outrage,” said Hunter, who also said that most rental customers don’t take the policies.
Russo agreed that the majority of rental customers reject the waivers--70% of Hertz’s customers refuse them. But Russo said that charging “slightly higher” rental fees rather than offering the insurance is a more equitable and honest way of spreading out the costs of buying and maintaining huge vehicle-rental fleets.
Hertz, for example, has 25,000 different rental rates in its U.S. system, with an average daily rate of $32. Customers choosing Hertz’s collision waivers pay from $10 to $13 extra for their contracts, Russo said. That extra money helps to finance the costs of cars used by the majority of the customers who reject the waivers, Russo pointed out.
Getting rid of the waivers means that Hertz will have to raise its overall rental rates by about $2.40 a day, Russo said.
“Obviously, everybody will be picking up that extra cost of doing business,” Russo added. “But we figure that’s a much fairer way of doing it than engaging in a lot of the coercion and deception that’s now going on.”
