Actual Cash Value

In licensing class, we all memorized Replacement Cost minus Depreciation equals Actual Cash Value (ACV).  You’re impressed I still remember that, aren’t you?


However, once a month I talk to an insured who refers to ACV as the ‘smoke and mirrors’ of insurance. I usually get what is the amount that I am actually insured for on the policy?  How do I double-check your figures?

Which gets me thinking – is it always a claim thing?  Why not calculate it and put it on the policy?  We have all this technology nowadays.  Why not make it a cost saving measure?

Online, you can look up depreciation for roofing, siding, dryers, washers, barber chairs, filing cabinets, and throw rugs. But there is little information about actual cash value of cars. So, I made up this pros and cons list to review;

Better Forecasting

Wouldn’t it be great to pull up a policy declarations page and see the value of the vehicle right there?  How about we show the insured the math right on the declarations page.  Pull the figure from Kelly Blue Book minus out the depreciation and there you have the figure.

It would help out entirely in identifying which vehicles should be stated value, agreed value or liability only.  Further, this would allow for better forecasting of reserves.  The carrier would have an exact number to have on hand in the event of a catastrophic loss.

Changes every year

The figure would not have to stay the same from renewal to renewal.  Based on photos or claims reporting, the value would decrease yearly.  The insured could see firsthand how the value of the vehicle is measured.

Of course, this may force changes in the market.  For instance, the value of cars may begin to follow their mechanics and service, instead of the market.  What about a value based on how many recalls instead of how many people are buying it?  Wouldn’t that be something?

Generally speaking, with the exception of agreed value, no auto policy guarantees a value.  If there is any type of discrepancy (this would be minor at best), then figures can change.

The Con: Morale Hazard


In the end, the insured would feel more secure in knowing this was the figure that put forward.  It would not seem like some random numbers the guys at the water cooler down at the insurance company pulled out of the air.

Of course, there is the possibility of the insured failing to respond to requests for updated information.  What then?  Should we remove physical damage coverage or just non-renew the policy?

This may leave too much of an area for fraudsters to manipulate or falsify information to get a bigger return on claims.  That’s the chance you take with any insurance policy.

I think this is an innovative way to help the customer service end of the business.  What would be better giving the value or not?

Leave a comment or share an experience.

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