Auto Recalls: How Do They Impact Car Insurance?
Every year, approximate 200 vehicles are recalled due to problems inherent in the vehicles. While most of these recalls concern very minor adjustments or repairs, some, such as the recent Toyota unintended acceleration problem, concern life-threatening safety issues. It is the legal duty of car manufacturers to release safe products on the market that contain no issues or problems that could lead to user death or injury; therefore, the government has the power to force recalls of certain vehicles if the companies do not voluntarily take back their own products or offer free repairs.
The National Highway Traffic Safety Administration is the governing agency that controls car recalls. The NHTSA works with auto manufacturers to announce recalls to the public and can also demand a recall if necessary. In most cases, drivers are asked to bring their vehicles to the nearest dealership for a free repair or replacement of the defective part.
Do Recalls Affect My Auto Insurance?
It is possible for a recall situation to ultimately affect auto insurance rates, although the recall itself should have no impact on rates. In order to understand how a recall can affect auto insurance rates, it is important to understand how auto insurance companies calculate rates in the first place.
The Crash-Test Safety Factor
One of the factors that determines auto insurance rates is the safety rating of the vehicle in question. The NHTSA puts out a yearly list of vehicles that have been tested for several types of impact safety. For example, the NHTSA may test vehicles for front-impact collision safety, rear-impact collision safety and rollover roof strength. The NHTSA assigns a grade for each vehicle, usually given as a “five-star” rating: four out of five stars is considered good.
Therefore, a vehicle that has a five-star crash test rating is theoretically safer for drivers and passengers than one with a lower rating. An insurance company may look at this information and offer lower premiums to drivers of that particular car than to cars with lower crash-test safety ratings.
Overall Vehicle Safety
According to the crash-test rating system, recall of a defective car should not affect the auto insurance premiums of that vehicle. The recall simply takes care of a defect that was not obvious at the time the car was tested. Theoretically, the recall solves the problem of danger inherent in a vehicle that has been identified as having some flaw.
However, the insurance rate for a vehicle can go up if the recall reveals an underlying safety issue that cannot be corrected. This is not a common situation, but it has happened when a seemingly small problem blossomed into a full-blown safety issue. For example, the Toyota unintended acceleration problem was originally blamed on incorrectly installed floor mats. The problem of sudden unintended acceleration continued, however, even in vehicles in which the floor mats were placed correctly. This means that the sudden unintended acceleration problem may be more difficult to diagnose and correct than originally thought. If the problem persists, these vehicles could become more difficult and expensive to insure.
Vehicle Value Quandry
There is another insurance problem related to vehicle recalls. While a small repair may not lower a vehicle’s value, a major recall may cause the owner of the vehicle to lose value over the ownership period. This means that the owner of the vehicle is paying for insurance based on the assumption that a vehicle is worth more than it is, and may be paying premiums that are simply too high. Most insurance companies will not notify a person automatically if they believe that the value of a vehicle has declined; it is up to the owner to remain pro-active in this regard and ask for a discount based on possible loss of value in a vehicle due to a recall situation.
What Should I Do If My Vehicle Is Recalled?
While saving money on insurance is important, the most important thing to remember about a vehicle recall is that your safety and that of your family could be at stake. If you receive a recall notice, you should take your vehicle to the dealership immediately for repairs, even if the repair seems minor or unimportant.
Next, you should talk with your insurance company about the recall and the possibility that the vehicle’s value may be affected. If you notify the insurance company, they have a duty to recalculate your premium and give you a lower rate if the vehicle is, indeed, worth less money.
Ultimately, finding lower insurance rates for your vehicle may be a matter of shopping at various companies. Be sure to include any information on recalls for your vehicle if you are obtaining quotes from auto insurers.