Insurance Fight Could Have Been Avoided
For a long time, rental car companies covered the cost of collision damage to many of their cars with money taken in on “collision damage waivers.” Though many companies were self-insured for collision and the CDW for some years covered only a portion of car value, it was probably adequate. Indeed, there has always been some question of whether they covered such costs too well.
There have been questions as well about whether rental companies misrepresented CDW coverage, selling it as “insurance” while insisting it wasn’t to escape regulation, and whether they strong-armed customers into buying it when it may have duplicated coverage on their own auto policies. There were questions about advertising rates that didn’t include or disclose fat CDW surcharges. There were even questions about repair costs--most notably Hertz’s--that were billed to customers or their insurers and were found to be inflated.
Fortunately, given all the questions, competition jumped in: Other businesses are now offering to cover those costs. But rental companies, far from being relieved, aren’t happy. “Just try to get the money,” they say, although they probably mean that they liked getting it themselves.
Many auto insurance policies now have collision coverage that’s transferable to rented cars. Not everyone takes collision coverage, of course. But at State Farm, the nation’s largest auto insurer, more than 77% do now: “More and more people are financing cars,” says State Farm spokesman Bob Sasser in Bloomington, Ill., “and the lien-holder requires it.”
Credit card companies have also discovered collision damage, offering rental car coverage as an “enhancement”--one of an increasing roster of added services to give their card an edge in today’s competition. All American Express cards include the service and premium MasterCards and Visas--not just to compete with other cards but with other payment options. “In spite of the growth of plastic,” says Keith Kendrick, MasterCard’s senior vice president of marketing, “less than 10% of all discretionary consumer income spending goes on bank cards rather than cash or checks.”
All credit cards together handle only 13% of consumer spending, according to the Santa Monica-based Nilson Report, which covers the industry. Obviously, offering convenience, credit and accounting records isn’t enough, so they’re offering care. MasterCard’s first question to card-holders reporting rental car accidents is “Are you all right?,” says Kendrick. If not, the company will “get involved in the process” of calling an ambulance or police or getting medical help.
Sensitive to criticism of their own collision damage coverage, car rental agencies hasten to say that the coverage provided by credit card companies is no great deal, either. Application of the coverage is usually limited. It excludes exotic, antique and off-road vehicles, for instance, as well as long-term rentals (a 21-day limit for State Farm, 30 days for American Express, 60 days for MasterCard).
The effect of making a claim on one’s auto insurance is the same as with one’s own car: The premium goes up. Thus, a car rental agency can position its CDW, says Glenn Kurtz, an Enterprise Rent-A-Car agent in Beverly Hills, as “a service we offer to help them stay away from their insurance companies.”
What’s more, a rental-company CDW lets customers just “walk away” from any collision damage, they say, while outside coverage involves a lot of paper work. Indeed, one must file claims. But given a copy of the rental company’s bill for damage, a big insurer such as State Farm will deal with the company directly. Credit card companies send out claim forms to be returned with many documents attached--copies of the rental contract, repair bill, accident report, auto insurance policy, notice of amount paid by insurance.
This is secondary coverage, of course, paying what’s left after any applicable auto insurance, or other responsible party, has paid off. They’re also generally reimbursement plans, which means the customer may have to lay out money ahead--for any deductible carried on his policy or for the whole amount if there’s no policy-- sometimes before leaving the agency.
Outside payers may also be stiff with rental companies, they say. Credit card companies may be very slow to pay and it takes one small independent rental agency in Hollywood “about four months” to get money from insurance companies. Indeed, insurers may be slower than usual and demand more information “to be sure we’re not being ripped off,” says Sasser at State Farm. The insurer has less control than with private cars, which come in for inspection, often with estimates; here, the rental company has the car and may already be fixing it.
Such outside coverages don’t guarantee rental companies satisfaction. Some agencies say most of their customers have no auto insurance, often because they don’t own cars or are foreigners. They’re also transient: This is a business serving “a lot of leisure travelers they never see again,” says Jan Armstrong, director of the Washington-based American Car Rental Assn.
Even when customers have outside coverage--through insurance or a credit card--it’s “difficult (for rental agencies) to collect,” says Armstrong. “Nobody ever hears from the customer again. They can go after the companies, but there may be no response.”
In their view, the only workable solution to such high risks is the CDW, which gives them revenue up front instead of a promise of later payment. But it’s revenue, not money pooled to cover all damages or even to buy insurance. And pretending it was “insurance” just opened the door to the current complex competition.
The whole squabble was avoidable. Rental car companies, like other businesses, should have bought insurance for their fleet and factored the cost of it into their rates. Auto insurers needn’t have made their collision coverage transferable (building the cost into their rates), nor would credit card companies have offered the coverage (building the cost into their rates). Something relatively simple could have stayed simple, even straightforward, with car rental companies advertising honest daily rates that include insurance for everyone.
Maybe it’s not too late.
