How Car Insurance Works When You've Had an Accident

When Apple programmer Kit Cutler's 2012 Ford Focus was slammed from behind by a silver Lexus, the hit was so hard that it shoved his car into the Honda Accord in front of him. There was no bodily injury in the accident, but the driver of the silver Lexus drove off without providing auto insurance information to anyone. Cutler and the Accord's driver exchanged insurer information, filed reports with the police, and went home. The accident was only slightly more confusing to Cutler than the car insurance claims process that came after.

All on its own, insurance coverage can be baffling, but the car insurance claims process is even worse. "Most people only file a claim every eight to 10 years," says Jeanne Salvatore, vice president for public affairs and consumer spokesperson for the Insurance Information Institute, an industry-supported, non-lobbying group dedicated to improving public understanding of insurance.

Cutler filed a claim by phone. "In that initial interview, the agent told me very quickly that I wasn't at fault," he says. Then she asked him questions about the accident and typed his answers into an online form. Cutler checked and verified the information.

"They go through it all very quickly, so you have to pay attention," he says. "I hadn't been in an accident before, and I didn't know what was going on."

This article explains how car insurance works in the wake of an automotive mishap or collision. It also discusses what happens if you're hit by an uninsured or underinsured driver and how auto insurance teams work in the background to resolve claims.

Immediately After the Accident

If you're involved in an accident, Salvatore says that the first thing to do is let your insurer know what happened and provide all the specifics.
"From the second of the accident, keep good records." Use your smartphone, or keep a notebook in your glovebox, and write down the time, date, plate number, make and model of the other driver's car plus their registration information, license number, name, insurance provider and contact information. Auto insurance is obviously there to help you, but you have to help it by filling in the blanks when there's been an accident.

If the police are on the scene, Salvatore says, take the officers' names and badge numbers. Get the names of any witnesses and note whether emergency medical personnel were called. "Photos are helpful. Take pictures of the car and the license plate," she says. "If the claim is straightforward, you may not need any of it, but if a problem occurs, you need all the information possible."

Again, with the prevalence of smartphones these days, this is all easy to do.
From filing the claim to resolving it, every auto insurance company's methods are different. However, the essentials of the process are fairly standard. You'll only see part of the process, though. All negotiations between insurance companies about payments and reimbursements will be carried on behind the scenes.

Filing Your Claim

As with Cutler's case, it's standard for your insurance carrier to call soon after you report an accident. During that call, "we'll match the person to their policy, determine what happened in the accident, find out about any injuries, the extent of damage to both vehicles and get some demographic information," says Mike Flato, a process business leader for Progressive Insurance. "We'll make sure everyone is OK; if not, what happened and then who'll handle the medical claims."

After a claim is filed, your insurer assigns you a claims adjuster, who is your contact from then on. Adjusters coordinate teams that look at medical reports, investigate the accident, speak with witnesses, view the scene, examine the vehicle damage, manage all the repairs and any medical treatments, check all coverages (how much your policy pays for medical injuries and property damages) and ultimately determine fault.

"The claims process is the business of the insurance company," says Salvatore. "Every situation is different, and the better organized you are, the easier the claims process is."

While adjusters work, medical treatment and auto repairs start immediately, with each insurance company covering its own driver's injuries and property damages. This process of "making you whole" is known as indemnification. Your insurance company indemnifies you, not the other way around. Later, after the insurance companies assess fault, they will negotiate to determine which one will reimburse the other for claims paid.

Who's at Fault?

As with many things in car insurance, fault assessment is not necessarily a simple matter. "Liability laws don't govern how you assess fault," says John Murphy, service center business leader for Progressive Insurance. "They dictate how much you can collect and who is eligible." Therefore, fault determination is up to the insurance companies.

"There may be an allocation of fault, such as 60/40," says Scott Spriggs, a member of the Insurance Council of Texas. "In that case, payments may be apportioned by percent of fault." That is, the insurance company of the driver who is 60 percent at fault pays for 60 percent of the claims and the other company pays for the rest.

"Sometimes, if one party is allocated more than 50 percent of fault, that driver's insurance company pays for everything," Spriggs says. "In no-fault states, each driver's insurance company pays for its own customer's claims."

If one driver is wholly at fault, it's much simpler. "In at-fault states, at-fault drivers try to collect from their own insurance, whereas the person who is not at fault collects from the at-fault driver's insurance company," Salvatore says.

When an Uninsured or Underinsured Driver Hits You

It may come as a surprise, but the process doesn't change much when uninsured or underinsured drivers are involved.

"Each state has its own rules about what qualifies as uninsured and underinsured," says Murphy. If an uninsured driver hits you and you suffer injuries, "your insurance company will pay you," he says. But you must have collision insurance or coverage for uninsured or underinsured drivers in order for your carrier to pay for your car's damages. After any payments to you, your carrier "will try to find the uninsured driver and get reimbursement for its payments," he says.

Fortunately, Cutler got a photo of the Lexus' license from the Accord's driver. The photo meant Cutler's insurance company could find the hit-and-run driver and demand reimbursement for the $11,000 it paid to repair Cutler's car. Because of the photo, Cutler says, his insurance company waived his deductible.

Every state but New Hampshire and Virginia requires auto liability insurance. New Hampshire requires that drivers set aside funds for accidents, but Virginia doesn't, according to the Insurance Information Institute. Despite this, the institute says your chances of encountering an uninsured driver in the United States are about one in seven.

When a driver is underinsured, your insurance company will work with the other party's company to cover your claim, Spriggs says. For example, suppose the underinsured driver's policy covers up to $5,000 of property damage but your vehicle sustained $10,000 in damage. In that case, the underinsured driver's insurance company will pay $5,000 and your insurance company will pay the other $5,000. Your insurance company will then go directly to the underinsured driver and seek reimbursement for its payment to you.

Although claims adjusters determine fault, so-called subrogation units use those determinations to decide which insurance company pays and how much it pays.

"Subrogation is the substitution of one creditor for another," Spriggs says. "If I am hit by someone else, my insurance company will cover that damage." In other words, you substitute one creditor — your insurance company — for another creditor, the other driver's insurance company. That is subrogation. Then, of course, your insurer seeks reimbursement from the other company or the driver.

In Cutler's case, neither he nor the Accord driver was at fault. Therefore, each driver's insurance company paid its own customer's claim. No subrogation was involved.

How Carriers Resolve Payment Disputes

When each driver's carrier completes its claim investigations, "one insurance company will send a demand [for payment] to the other," Murphy says. "That will be countered. The carriers will then work out liability and who pays what. Most of the time, we make the appropriate payments. The faster we can do that, the faster we can pay out."

If companies can't agree on payment, they can request judgment from Arbitration Forums, an industry-funded nonprofit set up to handle insurance carrier disputes.

"For arbitration, the two companies apply and present all their information," Murphy says. "The arbitration panel makes a decision." Those decisions are final and binding, and there is no appeal.

What You Need to Know

Even the most minor car accident can shake you up. But it's important to know the steps to take so that everything will go smoothly in the claims process.

If you need to file a claim, know what kind of insurance coverage you have, brush up on liability insurance, be prepared with as much information about the accident as possible, stay in touch with your claims adjuster, and know your state's laws regarding car insurance.

"Every state has an insurance commissioner," Salvatore says. "You can go to that website to learn about your state's laws."