Menefee: How Should Insurance Companies Pay for Rental Cars?
The standard process we follow in my auto collision repair shop is that we process everything for a rental vehicle once we know if the customer is the insured or the claimant, and then we ask if they need a rental vehicle set up or not.
Most customers who are the claimants want a rental vehicle because they don’t have a second vehicle to use. They usually feel that providing a rental vehicle is another role for the insurance company, since it wasn’t their fault their vehicle was damaged.
So, when he or she says “Yes, I need a rental,” we tell them, “Okay, you don’t need to worry about it. We will make sure the insurance sets up the reservation and we will contact the rental vehicle company to set up the date and time for pickup.”
Most insurance companies use Enterprise or Hertz and have direct billing with them, monitoring the length of the rental and what size of vehicle is authorized. Every now and then you will run into an insurance company that doesn’t have direct billing and customers are forced to pay out of pocket for the rental, and then submit the receipt to the insurance company once they have their vehicle back, and wait for reimbursement from the insurance company. There is always the risk that the insurance company doesn’t want to pay for all of the charges that were incurred, creating a lack of satisfaction for customers.
Sometimes you can run into an insurance company that may only pay for loss of use, instead of dealing with rental reservations, as they let the customer figure out their own rental vehicle situation. For example, a vehicle repair is supposed to take 10 days, so the insurance company pays up front for those 10 days of rental at a rate of $30 per day, cutting the customer a check for $300 when the company pays for the initial repair estimate. Should the repair take more time than the estimated length of time, the customer can go back and ask for the difference in days paid.
Here in Texas and in numerous other states, rules from departments of insurance clearly state that insurance companies must provide a rental vehicle to customers if they are a claimant, and also state they must provide a rental vehicle in the form of rental reimbursement.
If an insurance company chooses to cover the bill up front and does not make claimants wait for reimbursement, it’s the company’s way of dealing with oversight and it’s a benefit provided to the claimant. Companies mainly use this technique hoping that claimants’ experiences will be smooth and not as frustrating as some other companies may make it. Also, companies believe that if claimants are satisfied, they may have a chance at capturing their business in the future. This has been the industry standard, until now.
One of the top three insurance companies in the U.S has moved away from covering car rentals up front, for claimants. Instead, it is simply abiding by state laws of rental reimbursement, or whatever is most basic for the state in which it is operating.
It would seem this company is only doing this to save money. In my opinion, it's betting that customers won’t have the cash on their own to pay for rentals themselves and wait for reimbursement. If claimants aren’t getting rental vehicles, then the insurance company won’t have to pay for one. This could lead to big savings for the insurance company that will add up fast.
This is quite a big deal, because when one insurance company makes a significant move other insurance companies take notice and lean toward following the same path. The company doing this to save money, in my opinion, is gambling on the fact that the claimants will just assume, or may not know better, that this is how all insurance companies handle rental vehicles.
The bottom line is this: Will Insurance companies save more money by handling claimant rental vehicles this way, through rental reimbursement? And will the money saved be worth the customers lost and customers not gained over their disappointment with the claims process? It will be interesting to see how it plays out, and if other insurance companies take notice and follow.