The 17C Formula and How Insurance Companies Evaluate Diminished Value
I worked as an insurance adjuster for many years at several companies. Every time diminished value was brought up, we used a formula that is widely used in the industry, but few adjusters know any of the actual details about it.
The 17c formula was developed by State Farm when the Georgia Supreme Court, in the matter of “State Farm Mutual Automobile Insurance Company v. Mabry et al., 274 Ga. 498 (2001)”, asked them to create a method on which diminished value could be measured. Please note that this method for measuring diminished value applies to that case only in a class action, but has become the generally accepted method among insurance companies nationwide.
The most interesting thing about this class action is that it was brought by State Farm insureds against the company, and established law in Georgia allowing for individuals to file first party claims on their own collision coverage, which is prohibited in most states.
The formula was unilaterally used to settle all claims in the class action suit so it has no bearing on what is actually happening in local markets across the country as far as diminished value is concerned. This illustration is of the actual spreadsheet I used as an adjuster:
Although widely used, the 17C formula is arbitrary. It allows for the adjuster to make some adjustment for the specific circumstances, but has many flaws. The biggest concern is that the Base Loss of Value upon which the calculations begin is set at 10% of the vehicle’s retail value. This assumes that 10% of retail should be the starting basis for diminished value on all vehicles and situations; but different vehicles lose value differently. Our experience reveals that the majority of local sales managers use Carfax or Autocheck to determine how much they’re going to depreciate a vehicle. If the vehicle history indicates severe, airbag deployment, or structural damage, then local dealers often depreciate 40% or more depending on the type of vehicle.
The bottom line is that 10% as a starting point FOR EVERY VEHICLE AND SITUATION is ridiculous. Every car model has a different value characteristic on the local open market and the specifics of how the accident history specifically affects that particular vehicle cannot be evaluated by a generic formula. The formula does not adjust for vehicle type or geographical location, and the mileage adjustments are extremely questionable because it adjusts for mileage more than once. It also assumes that there is no diminution in value to a vehicle that has over 100,000 miles (although having over 100,000 miles on your odometer is significant, market conditions could be contrary to formula 17c results depending on the nature of the vehicle).
Since it’s widely accepted internally at many insurance companies, a simple formula may be an easy way to get compensated for your loss, but it is very inaccurate at providing a true understanding of the specific depreciation to your particular vehicle in the local market. There is only one correct way of evaluating diminished value in the local market and that is to meet with sales managers in the local area and average how much they would depreciate the vehicle based upon the circumstances.
Our company follows Bureau of Certified Auto Appraisers (BOCAA) guidelines which state: Using a formula only to determine the post repair value of a vehicle is not acceptable under any USPAP or BOCAA guidelines. To determine a post repair value, BOCAA guidelines require market quotes from multiple dealer locations in the local market.
Don’t allow an insurance adjuster to compensate you improperly based upon an erroneous formula. Learn what constitutes a proper appraisal and insist on one before settling your loss.