From the ACRA Newsletter Editor:
Carlos A. Bazan
Carlos has ample experience operating peer to peer and traditional, independent car rental companies, including neighborhood locations and airport facilities. Carlos has owned car rental operations in the San Diego, Los Angeles, Phoenix, Las Vegas, Reno/Tahoe, San Jose, Dallas, Houston, and Honolulu markets and is in charge now of over 100 franchised locations in 14 countries.
Managing a car rental business is fundamentally about managing risk. Every rental transaction carries inherent uncertainties, from vehicle damage and theft to liability concerns and customer disputes. Ensuring that a fleet remains operational and profitable requires careful oversight of these risks, particularly when it comes to recovering losses after an accident or incident. Damage recovery is one of the most challenging aspects of this process, requiring operators to navigate a complex landscape of insurance claims, legal considerations, and negotiations with at-fault parties.
For many operators, the question is whether to handle damage recovery in-house or outsource it to a Third-Party Claims Administrator (TPA). While it may seem cost-effective to manage claims internally, the reality is that dealing with insurance companies can be time-consuming and legally intricate. From my experience, handling over 2,500 claims, both independently and through TPAs it has become evident that engaging an expert often results in higher recovery rates, faster resolutions, and fewer operational disruptions.
This month I will discuss the challenges of self-managed damage recovery, the advantages of working with a TPA, and the impact of key legal cases litigated by TPAs on the car rental industry. By understanding the complexities of the claims process, rental operators can make informed decisions about how to best protect their assets and maximize financial recoveries.
The Complexities of the Claims Process
Recovering damages in the car rental industry is far from straightforward. Each claim involves multiple parties, including the renter, insurance companies, attorneys, and sometimes third-party at-fault drivers. The process requires meticulous documentation, extensive follow-up, and legal knowledge to ensure that all recoverable costs are pursued. Operators who attempt to handle claims on their own often encounter significant hurdles that can delay or reduce recovery amounts.
One of the first obstacles in the claims process is determining liability. If a renter is at fault, the operator must assess whether the renter’s insurance policy will cover the damages or if the renter is personally responsible. If a third party is at fault, pursuing a claim against their insurer can be an arduous process filled with delays and attempts to minimize payouts. Insurance adjusters generally are trained to negotiate the lowest possible settlement, often disputing charges related to loss of use, administrative fees, and diminished value — key components of a complete recovery.
Legal and regulatory considerations add another layer of complexity. Different states have varying laws governing vehicle damage claims, including the ability to claim loss of use and specific documentation requirements.. Failing to comply with state-specific legal requirements can result in claim denials or prolonged disputes. For that reason, it is essential to work on protecting every rental from the beginning with well-drafted rental agreements and by consulting with an attorney.
Beyond legal hurdles, the administrative burden of handling claims is substantial. Each claim involves gathering damage reports, repair estimates, rental agreements, insurance communications, and payment records. If a claim is disputed, operators may have to engage in prolonged negotiations or even litigation, further draining time and resources. For rental operators who need to keep their fleet operational and their staff focused on customer service, these administrative demands can become overwhelming.
Recovering damages from an at-fault third party’s insurer requires persistence and expertise. Many claims are underpaid or outright denied if they are not aggressively pursued. TPAs specialize in subrogation (i.e., assuming the rental operator’s right to recover damages from an at-fault third party’s insurer), leveraging their industry experience and legal knowledge to maximize recovery. Without a dedicated claims expert, operators may find themselves settling for far less than what they are owed, ultimately impacting their bottom line.
Given these complexities, car rental operators must carefully evaluate their ability to handle claims internally. Without the necessary legal expertise, negotiation skills, and administrative capacity, recovering damages can become a frustrating and costly endeavor. This is where TPAs provide significant value, ensuring that claims are handled efficiently and effectively while operators focus on their core business.
The Advantages of Working with a TPA
Engaging a Third-Party Claims Administrator offers a strategic advantage for car rental operators seeking to optimize their damage recovery efforts. TPAs bring specialized expertise, industry relationships, and an in-depth understanding of insurance policies that generally enable them to achieve significantly higher recovery rates than operators managing claims on their own.
One of the key benefits of working with a TPA is efficiency. Claims processing requires meticulous attention to detail, from gathering documentation and assessing damage estimates to negotiating settlements with insurers. TPAs have established systems in place to streamline this process, ensuring that claims are handled quickly and with minimal disruption to the operator’s business. This efficiency accelerates recovery and reduces administrative burdens on the rental company.
Another major advantage is financial optimization. TPAs specialize in maximizing recoveries by including loss of use, diminished value, and administrative fees in their claims where permissible — components that many operators overlook or fail to justify effectively when handling claims themselves. Their experience in damage recovery and negotiations with insurance adjusters means they typically can counter against low offers and help ensure rental operators receive the damages to which they are entitled.
Legal expertise is another critical asset TPAs bring to the table. Navigating the various state laws and federal regulations governing rental car claims is a complex task. TPAs generally stay current on changes in applicable law, to help ensure compliance with all requirements and strengthening the validity of claims. When they leverage their knowledge, they help rental operators avoid potential pitfalls that could lead to claim denials or legal disputes.
Moreover, TPAs possess established relationships with insurers, attorneys, and industry professionals that can facilitate smoother negotiations and faster settlements. Their reputation as industry experts often commands more leverage in discussions with insurance companies, reducing the likelihood of prolonged disputes and underpaid claims. Having a reputable TPA on board signals to insurers that the rental operator is serious about pursuing full recovery, which can deter attempts to minimize payouts.
Notable Cases Fought by TPAs
Legal battles have played a crucial role in shaping the landscape of damage recovery for rental operators. TPAs and subrogation experts have been at the forefront of litigation, establishing precedents that strengthen the rights of rental companies.
One of the most significant cases is Koenig v. PurCo Fleet Services, Inc., in which the Colorado Supreme Court ruled that rental companies can recover loss-of-use damages regardless of whether the fleet is fully utilized. This decision reinforced the principle that rental companies should be compensated for the time a vehicle is unavailable due to damages, setting a powerful precedent across the industry.
Another key case, PurCo Fleet Services, Inc. v. Idaho State Department of Finance, addressed regulatory concerns over whether PurCo needed a collection agency permit under Idaho law. The ruling clarified regulatory requirements and compliance considerations for TPAs operating in different jurisdictions.
The Purco case illustrates the importance of working with a TPA that is not only experienced in claims management, but also willing to defend rental operators’ rights in court. By setting critical legal precedents, TPAs ensure that rental companies are adequately compensated and protected from financial losses.
For car rental operators looking to strengthen their damage recovery efforts, partnering with a TPA can provide the expertise and legal backing necessary to maximize claims and minimize losses. Research the available options and connect with TPAs to determine the best strategy for protecting your fleet and your bottom line.
Until next time, here’s to smarter, safer, and more efficient car rentals!
Warm regards and move those claims to success!
Carlos Bazan / Editor