Insurance Companies Face Significant Costs Associated with First Notice of Loss (FNOL) and Claims Processing
Insurance companies face significant costs when there are delays in recovering vehicles involved in accidents that are being held in tow lots before the First Notice of Loss (FNOL) and subsequent vehicle recovery for claims processing. These delays can substantially impact the overall cost of claims and the efficiency of the claims process.
Storage Fees
One of the primary costs incurred due to delays is storage fees. When vehicles are towed from accident scenes to storage facilities, daily charges begin to accumulate immediately:
- Storage facilities typically charge daily or hourly rates, often regulated by state laws[1].
- On average, vehicles remain in storage for 7-10 days after an accident.
- The average cost of storage fees can range from $400 to $450 per vehicle.
These fees continue to accrue until the insurance company is notified and can arrange for the vehicle's release and transfer to a repair facility.
Secondary Towing Costs
Once the insurance company is notified and the vehicle is released from storage, additional towing is often required:
- Secondary tows to transport vehicles from storage yards to repair shops cost an average of $125 to $150 per tow[1].
- These costs could potentially be avoided if the insurance company were notified immediately and could arrange for direct towing to a repair facility.
Increased Rental Car Expenses
Delays in vehicle recovery and the initiation of repairs can lead to extended rental car periods for policyholders:
- Insurance companies pay an average of $150 to $200 for rental reimbursement during the 7-10 days a vehicle typically spends in storage.
- Longer storage periods directly correlate with increased rental car costs for the insurer.
Administrative Costs
The process of recovering vehicles from storage facilities can be complex and time-consuming, leading to increased administrative costs:
- Insurance claim agents may spend hours on the phone coordinating with tow companies, storage facilities, and policyholders.
- This time investment translates to higher operational costs for the insurance company.
Impact on Claims Costs
Delays in reporting claims can significantly increase the overall cost of the claim:
- Claims reported 4 weeks after an incident cost an average of $19,936, compared to $13,210 for claims reported within 1-2 weeks – a 51% increase[1].
- Claims reported more than 2 weeks after an incident are characterized by more attorney involvement, more use of lump-sum settlements, and longer periods before claim closure[1].
Potential for Fraud or Misrepresentation
Delays in vehicle recovery and inspection can increase the risk of fraud or misrepresentation of damages:
- Late reporting may allow for additional damage to occur or be falsely attributed to the original accident.
- This can lead to inflated repair costs or unnecessary payouts.
To mitigate these costs, insurance companies are increasingly focusing on improving the FNOL process and encouraging prompt reporting. Strategies include implementing crash detection technology, streamlining reporting processes, and educating policyholders on the importance of timely claim reporting. By reducing the time between an accident and FNOL, insurers can significantly decrease the overall cost of claims and improve the efficiency of the claims process.
Citations:
[1] https://coremarkins.com/reporting-claims-later-can-double-the-cost-report-finds/
[2] https://www.insurtechinsights.com/why-improving-fnol-can-reduce-insurance-claim-costs/