The Auto Accident Settlement Formula
The basic formula insurance companies use to calculate auto accident settlements is:special damagesx (multiple reflecting general damages) +lost wages=settlement amount.What Are Special Damages?
Special damages are losses caused by the defendant’s actions that can be assigned a monetary value. The cost of these losses can easily be added up to an exact dollar amount. Common General Damages include:
- Loss of wages
- Medical Expenses
- Property damage
Once the adjuster can total your special damages, he or she will multiply that dollar amount by a figure depending on the severity of the accident and the injuries. This multiple will then be used to reflect the severity of general damages.
What Are General Damages?
General damages are losses that are a direct result of the defendant’s wrongdoing but can not be assigned a specific monetary value. Examples of this include:
- Loss of enjoyable activities
- Emotional damages such as stress and depression
- Loss of consortium which is based on damaged relationships
Because there is now evidence such as bills or receipts that can help assign a specific value to general damages, they are calculated a little bit differently.
As mentioned in our previous section, adjusters assign a multiplier to the sum total of all special damages. This multiplier is what represents general damages in the auto accident settlement formula and is often referred to as the multiplier method.
The Multiplier Method
The multiplier method is essentially assigning a value on a scale of up to 5 based on the severity of your special damages and how significantly you have been impacted by the accident. In other words: the more serious the accident and injuries are, the higher the multiplier will be.
For example:
Let’s say you got into an accident where there was not much property damage to the vehicle, and your medical records only reported soft-tissue damage such as a sprain or strain. In this case, the adjuster would likely assign a multiplier of 1.5 or 2.
On the other hand, let’s say you got into an accident where the property damage was severe, and you experienced broken bones, or even worse brain damage or disfigurement. In this case, the adjuster would likely assign a multiplier of 4 or 5.
What are Lost Wages?
Once the adjuster has that new number (the total of general and special damages) he or she will add any amount of lost wages that the victim may have experienced as a result of the injury.
For example, if an injured party is forced to miss two weeks of work because of the pain of their injury, he or she would be entitled to two weeks of pay from the at-fault party’s insurance company.
The resulting number is a general idea of what the insurance company thinks the claim is worth.
Keep in mind that this formula will end up setting a range in which the adjuster has the authority to negotiate your claim.
Do I Have to Accept my Settlement Offer?
Youdo nothave to accept the exact amount of the first offer, in fact, that would be quite foolish.The adjusters are trained to obtain release from victims in exchange for the lowest amount of auto accident insurance settlementmoney that the victim will let the insurance company get away with.It is also important to realize that most auto insurance companies today use a software system calledColossus.What is Colossus?
Colossus is a system that enables adjustors to simply input all sorts of data and Colossus will spit out the exact range in which the adjustor is free to negotiate.
This system gives different weight to each type of medical treatment received and it gives different dollar amounts for each exact symptom and injury notated on the medical records. Significant delays and gaps in treatment can signal Colossus to seriously devalue your case.
Also of note is the fact that Colossus gives weight to whether or not an attorney is involved, and the history of that particular attorney.
For that reason, attempting to settle anauto injury claimon your own starts you out at an immediate deficit.
Hiring an Attorney for Your Auto Accident Case
Related Content:Auto Accident Insurance Claims ProcessThis article is offered only for general information and educational purposes. It is not offered as and does not constitute legal advice or legal opinion. You should not act or rely on any information contained in this article without first seeking the advice of an attorney.
FAQs
The basic formula insurance companies use to calculate auto accident settlements is:special damages x (multiple reflecting general damages) + lost wages = settlement amount.
What is the formula for insurance settlement? ›
The general formula most insurers use to measure settlement worth is the following: (Special damages x multiplier reflecting general damages) + lost wages = settlement amount.
What is the formula for settlement value? ›
To determine a potential settlement value, they first combine the total of medical expenses to date, projected future medical expenses, lost wages to date and projected future lost income. The resulting sum is then multiplied by the pain and suffering multiplier value to produce a projected settlement amount.
How do insurance companies calculate claims? ›
What is the damage formula?
- Minor injuries: their medical expenses are usually multiplied by 1.5 to 3.
- Medium injuries: the sum of medical bills is multiplied by 3 to 4.
- Severe or permanent injuries: the total amount of medical expenses can be multiplied by 5 or more.
To get a reasonable starting number for negotiating general damages, many insurance companies and attorneys multiply the amount of medical special damages by a factor of 1.5 to 5, depending on the severity of the injuries. In extreme cases, a factor of more than 5 may be used.
What is the formula for claim settlement ratio? ›
How Do You Calculate a Claim Settlement Ratio? You may use the following formula to compute a CSR : (Total number of claims settled in a year/ Total number of claims in a year) X 100 = Claim Settlement Ratio (CSR). For example, out of the 10,000 claims filed in 2019-2020, Company A settled 9,600 of them.
How is the settlement amount calculated when total loss? ›
An insurance company determines value based on the vehicle's actual cash value (ACV). ACV is calculated by subtracting depreciation from the cost to replace the car. Factors like mileage, condition, and market demand can influence depreciation.
How do insurance companies determine how much you pay? ›
12 Factors That Affect Your Car Insurance Costs. The cost of car insurance is affected by factors including your age, gender, location and marital status; the vehicle you drive; your annual mileage; your driving record; your claims history and even your credit score.
How do you calculate average claim amount? ›
How is the claim amount calculated under the Average Clause in Fire Insurance? The claim amount is calculated using the formula: Claim Amount = (Sum Insured/Property's Actual Value) × Loss Amount.
What is the formula for the amount of claim? ›
The actual amount of claim is determined by the formula:
Claim = Loss Suffered x Insured Value/Total Cost. The object of such an Average Clause is to limit the liability of the Insurance Company. Both the insurer and the insured then bear the loss in proportion to the covered and uncovered sum.
The Multiplier method adds up all incurred costs like medical bills, lost wages, etc. along with inevitable future costs. It then takes that total and multiplies it 1.5 to 5 times that amount depending on the severity of the pain, suffering, and emotional distress.
How much injury compensation will I get? ›
The amount of compensation that can be claimed for general damages depends on the type of injury and suffering experienced, and the severity of it, as well as how long quality of life is affected. Therefore, there isn't a 'one sum suits all' approach to general damages; every single claim is different.
How does a court determine the amount of damages to be awarded? ›
Damages are imposed if the court finds that a party breached a duty under contract or violated some right. The sum of money included in the damages can be compensatory damages that are calculated based on the harmed party's actual loses, or punitive damages intended to punish the wrongdoer.
How do you calculate present value of a settlement? ›
Key Takeaways
- The present value formula is PV = FV/(1 + i) n where PV = present value, FV = future value, i = decimalized interest rate, and n = number of periods. ...
- The future value formula is FV = PV× (1 + i) n.
Claim = Loss Suffered x Insured Value/Total Cost. The object of such an Average Clause is to limit the liability of the Insurance Company. Both the insurer and the insured then bear the loss in proportion to the covered and uncovered sum.
Where can I find claim settlement ratio? ›
What is the method for determining the claim settlement ratio? To calculate the claim settlement ratio, use the following equation: Claim Settlement Ratio (CSR) = (Total number of claims settled in a year / Total number of claims in a year) x 100.
How to calculate insurance formula? ›
The simple way to calculate IRV is insurance life cover = current annual income X years left for retirement. For instance, if you are 40, and your annual salary is 15 lacs, the cover you will require is Rs. 3 Crore i.e., 15 lacs X 20.
