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The Formula Used by Insurance Companies to Calculate Auto Accident Settlements

The Formula Used by Insurance Companies to Calculate Auto Accident Settlements

Insurance companies will value your claim based on their projections about how a case would come out if it were to go to trial.

When a plaintiff wins a judgment at trial, the judgment will be for a number of damages. Insurance adjustors deal with many different car accidents every day so they become quite efficient at valuing claims.

The Auto Accident Settlement Formula

The Auto Accident Settlement Formula

The basic formula insurance companies use to calculate auto accident settlements is:

special damages x (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.

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Do I Have to Accept my Settlement Offer?

Do I Have to Accept my Settlement Offer?

You do not have 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 settlement money 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 called Colossus.

 

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 an auto injury claim on your own starts you out at an immediate deficit.

Hiring an Attorney for Your Auto Accident Case

Hiring an Attorney for Your Auto Accident Case

An experienced personal injury attorney can make sure that your case receives the maximum possible value and can then negotiate for a settlement amount towards the top of the possible range of settlement amounts.

Related Content: Auto Accident Insurance Claims Process


This 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.

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