As Gulf Coast communities from Texas to the Florida Keys begin a years-long recovery from the onslaughts of hurricanes Harvey and Irma, another surge is on the way. This one is not rising water; it’s salvage vehicles that were totaled in the storms’ flooding and may be dumped back on the market by the thousands after being rebuilt—or just dried out.
AIR estimates auto-related losses from Harvey—by far the costlier of the two storms—at $3 billion. CNBC reported a Cox Automotive estimate that some 500,000 vehicles may be totaled as a result of Harvey. That’s about double the toll taken by Superstorm Sandy in 2012, and one-tenth the number of vehicles recorded as salvage for any reason in 2015 by the National Motor Vehicle Title Information System (NMVTIS).
While auto losses from Irma are likely to be less, the latter hurricane did bring a significant storm surge and the threat of more flooding as it moved toward inland areas of the Southeast. This could add still more flooded vehicles to a system already under strain.
Insurer risks related to flood titles
Flood damage is one of several types of title “branding.” In The Challenge of Auto Insurance Premium Leakage, Verisk estimates vehicle defects including flood titles at around $4 billion annually. The common thread is that such vehicles often don’t operate to factory specifications, nor are they as safe as originally manufactured. They generate significantly higher claim frequency, and they’re also favorites for use in “staged” claims.
As these vehicles make their way back into the market, some buyers will know what they’re getting and their insurers will know the risks they’re underwriting. But as always occurs after a major flood, unscrupulous dealers will snap up flood-damaged vehicles and move them across state lines to obscure their branded title histories. Insurers will need to be on heightened alert, especially with the extraordinary volume of salvage vehicles expected to move through the system in a relatively short time.
Salvage motor vehicles
For vehicles affected by Harvey, Texas law defines a salvage motor vehicle as one that’s damaged or missing a major part that increases the cost of repair beyond the vehicle’s actual cash value before it was damaged. A salvage motor vehicle may be repaired so that it can be titled as rebuilt and then registered to operate on public roads, with this history indicated on the front of the title. By law, a vehicle deemed nonrepairable—so badly damaged that it has value only for parts or scrap—cannot be repaired, rebuilt, or registered.
Federal law requires all salvage dealers to use the NMVTIS. Ideally with such tools, title branding should follow a vehicle anywhere it goes in the United States. But fiscal constraints in recent years have taken a toll on interstate sharing of information. This makes it easier for dishonest vehicle wholesalers to buy flood-damaged and totaled vehicles, ship them out of state, and “wash” the title to hide prior branding. Verisk client analysis has found 9 percent of vehicles studied to have such title defects.
Identifying the risks
The challenge for auto insurers is identifying such vehicles if they slip through the regulatory net and into consumers’ hands. Vehicle identification number (VIN) matching can identify vehicles with current branded titles as well as those that may have been retitled in another state. Claim history can provide another window into a vehicle’s past.
Verisk’s Vehicle-Registration Reports provide a wealth of information, including title histories across jurisdictions based on VIN data.
- RISK:check® Point of Sale also discovers whether a vehicle has ever carried a branded title at any time in its history. If so, the tool automatically populates the vehicle information accordingly, regardless of the currently reported title status.
- ISO ClaimSearch® can uncover the claim history on a vehicle, including flood claims. It also offers a web-based, encrypted application, VINassist™, to edit and decode VINs and detect discrepancies, as well as assisting with NMVTIS reporting.