The Process of Calculating Car Accident Insurance Settlements

Learn more about the insurance claim process and how adjusters estimate the value of your claim.

Updated by Stacy Barrett, Attorney
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  • If you want to get the most out of your car accident claim, you need to be prepared to negotiate with an insurance adjuster. Negotiating a final settlement is a bit like haggling over a used car or a piece of furniture at a flea market. You need to figure out how much you're willing to accept to settle the claim, and the adjuster needs to decide how much the insurance company is willing to payout.

    You are more likely to get what you want out of the negotiation if have concrete numbers and evidence to support your position. In this article we'll cover:

    • how the insurance settlement process works, and
    • four ways to estimate how much your car accident claim is worth.

    The Car Accident Settlement Process

    The car accident settlement process begins at the scene of the accident. It ends, if all goes well, when you receive a settlement check compensating you for your injuries and other losses.

    Find and Preserve Evidence

    The scene of the accident is where you need to start gathering information to support your claim. You're looking for evidence that the other driver was at fault for the accident and documentation of your accident-related losses (damages).

    Helpful supporting documents might include:

      • police reports
      • witness statements
      • photos of the accident scene, property damage, and injuries
      • medical records
      • medical bills
      • employer verification of lost income, and
      • car repair bills.

      The Demand Letter

      Soon after the car accident, you should open a claim with the at-fault driver's insurance company and contact your own insurance company. When you fully recover from your injuries—or reach maximum medical improvement—you should send a demand letter to the insurance adjuster assigned to your case. Your letter should tell your side of the story, explain how the other driver was negligent, and provide a detailed account of your injuries and losses, including supporting documents.

      The adjuster will likely respond with an offer that is less than your initial demand and you'll negotiate from there. If you are prepared and persistent, you'll likely be able to reach a fair settlement agreement. The final paperwork involves you signing a "release of liability" in exchange for an electronic payment or check. That is, the insurance company will pay you money in exchange for your promise not to sue the at-fault driver.

      Settlement Value of Your Injury Claim

      There are four main ways to estimate the settlement value of your injury claim:

      • the Colossus software program
      • the multiplier method
      • the per diem method, and
      • the BASE formula.

      Colossus

      Many large insurance companies use a software program called Colossus, or a similar program, to calculate car accident settlement values for small to medium-sized claims. Some adjusters rely on it heavily, especially new adjusters. Other adjusted use Colossus as a guide or a tool.

      You can't access Colossus because it isn't available to the public. And you probably wouldn't want to rely on it anyway. Many car accident lawyers think the program significantly underestimates damages like pain and suffering.

      Multiplier Method

      Adjusters often use the multiplier method to estimate the value of your claim. This method requires the adjuster to:

      • total up your accident-related medical bills (called medical special damages)
      • multiply your medical special damages by a number between one and five (the "multiplier") to get an estimate of harder-to-measure damages, like pain and suffering (called general damages), and
      • add your medical special damages, estimated general damages, lost income, and property damage to arrive at an overall estimate of your car accident claim.

      The adjuster chooses a multiplier based on the seriousness of your injuries, the obviousness of the other driver's fault, the length of your recovery, and other factors.

      For example, let's say you were rear-ended and injured your shoulder. Your accident-related medical bills add up to $5,000. In addition to your injuries, your bumper was smashed and cost $1,000 to fix. The adjuster decides that a multiplier of 2 is appropriate in your case because you suffered soft-tissue injuries only and bounced back quickly without having to miss work. So, in the adjuster's opinion at least, your general damages are worth $10,000 ($5,000 x 2).

      Your ballpark estimated damages then would be: $5,000 (medical special damages) + $10,000 (estimated general damages) + $1,000 (property damage) for a total of $16,000.

      Per Diem Method

      Another way adjusters estimate general damages is by assigning a "per diem" (per day) value to each day you have to live with the pain caused by the accident. The problem with this method, of course, is figuring out the daily rate to use.

      Adjusters often use your daily earnings. For example, let's say you were sideswiped. You suffered a moderate neck strain. You were in pain for three months (about 90 days). You earn about $180 per day. An adjuster using the per diem method would assign a value of $16,200 (90 x $180) to your estimated general damages and then add that number to your medical special damages, lost income, and property damage.

      BASE Formula

      The Baldyga Auto Accident Settlement Evaluation (BASE) is another method you can use to figure out the potential value of your claim. The method was developed by Dan Baldyga, an adjuster turned claims manager, who decided to share secrets he learned while working in the insurance industry for over 30 years to help people settle their own car accident claims.

      The BASE formula will give you four initial claim values to frame your negotiations. The four BASE values are:

      • low value
      • core value
      • mean value, and
      • premium value.

      Each of the BASE values is linked to a multiplier:

      • 2 is the multiplier for the low value
      • 3 is the multiplier for the core value
      • 3.5 is the multiplier for the mean value, and
      • 4 is the multiplier for the premium value.

      Provable Damages

      The first step in using the BASE formula is to total up your provable damages (also called special damages). Provable damages are direct losses that are fairly easy to identify and calculate. Special damages might include:

      • medical bills (emergency services, hospital stays, treatment from specialists, pharmacy expenses, and physical therapy)
      • cost of future medical treatment
      • lost income, and
      • future lost earnings.

      Variables

      The next step is to decide which multiplier fits the facts of your case—low (2), core (3), mean (3.5), or premium (4). The core value is appropriate for a typical or average case and then you can add and subtract weight to the claim based on variables, including:

      • the seriousness of your injuries
      • the length of your treatment
      • your prognosis (a forecast of the likely outcome of your injuries)
      • your level of accident-related emotional distress and daily life disruptions, and
      • the personal character, profession, age, and driving records of you and the other parties involved in the accident.

      The BASE Formula Doesn't Include Property Damages

      The BASE formula only addresses the injury portion of your claim, including pain and suffering. If your property was damaged in the accident, you'll need to add the cost to repair or replace that property to your total BASE value.

      BASE Formula Example

      Let's take a look at an example of how the BASE formula works. Imagine a truck driver rear-ended you while you're stopped at a red light. The truck driver was clearly at fault for the accident. Your bumper was crumpled in the accident and your mechanic says it'll cost $2,000 to fix.

      The force of the collision caused your neck to snap forward. You were taken by ambulance to the hospital where an MRI confirmed an injury to your cervical-dorsal area. You had to miss a week of work, take prescription pain medication for a month, and complete six months of physical therapy to regain full mobility. Your provable damages for medical bills and lost wages total $10,000.

      Here's what the value of your case looks like at each BASE value level:

      • low level value = $20,000 (2 x $10,000)
      • core level value = $30,000 (3 x $10,000)
      • mean level value = $35,000 (3.5 x $10,000)
      • premium level value = $40,000 (4 x $10,000)

      The core level value of your case is $30,000. Variables like the seriousness of your injuries and the length of your physical therapy will bump you up to the mean ($35,000) or premium ($40,000) level value, or knock you down to the low value ($20,000). Don't forget to add $2,000 to your BASE value to cover your property damage.

      After settling on an appropriate BASE value, you are ready to begin negotiations with the insurance company. You should ask for substantially more than you are willing to settle for in your demand letter so you have plenty of room to haggle with the adjuster.

      For example, if you decide the mean level ($35,000) is appropriate in your case, you should ask for at least $50,000 in your demand letter. The adjuster will likely tell you what is wrong with your claim and make you a low offer. You respond with a counteroffer that is lower than the settlement demand in your letter (for example, $40,000 or $45,000). The adjuster then increases the company's offer and you'll hopefully settle on a number that is close to the mean level ($35,000) that you want.

      Talk to a Car Accident Lawyer

      If you have questions about the value of your claim, talk to a lawyer. A lawyer can walk you through the methods adjusters use to calculate claims in car accident cases. A lawyer can take some of the stress out of negotiating and help you get the best possible outcome in your case.

      Learn more about hiring a car accident lawyer. You can also connect with a lawyer directly from this page for free.

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