In a car accident, the market value of the damaged vehicle inevitably decreases based on its manufacturing year and condition. Even if repairs and part replacements are carried out to the highest quality standards, potential buyers are still reluctant to pay the same price as before the accident. In other words, "vehicle depreciation" refers to the difference in a vehicle's value before and after an accident. In many global auto insurance policies, depreciation coverage applies to the damaged vehicle and not to the at-fault vehicle.

The Impact of Vehicle Depreciation in Accidents

Depreciation due to an accident is an issue many people face, particularly if the car is brand new or expensive, where the depreciation rate tends to be higher. In addition to repair costs, depreciation-related losses can significantly affect vehicle owners. However, in all road incidents—including collisions, overturns, explosions, and fires—financial losses can be covered by third-party liability insurance (TPL). Damages to the at-fault party's vehicle, on the other hand, are covered under comprehensive auto insurance.

Previously, claiming depreciation compensation involved complex procedures and formalities. However, as of late this year, the process has been significantly simplified.

Research Study and Findings

According to the PRIAO-IRC report, this study explores various aspects of the issue, including legal frameworks, statistical data on damages, and potential solutions. The project was requested by the Iranian Insurers Syndicate and conducted with an applied approach.

Summary of the Study:

· Chapter 1: Examines vehicle depreciation in the country, market conditions, current insurance industry challenges, legal expert opinions, and methods used by insurance loss assessors and forensic experts.

· Chapter 2: Analyzes statistical data on depreciation from two major insurance companies, namely Asia Insurance Company and Arman Insurance Company. It also measures the proportion of depreciation claims in total third-party liability insurance claims.

· Chapter 3: Reviews depreciation policies in India, Türkiye, Malaysia, England, Germany, and all 51 U.S. states, examining international standard methods for depreciation assessment and adapting them to the local market.

· Chapter 4: Includes interviews with legal experts, forensic specialists, underwriters, industry representatives, and policyholders, with the findings incorporated into the report. It also presents solutions to reduce dissatisfaction among insured individuals and claimants.

· Chapter 5: Summarizes the findings and proposes recommendations and solutions.

Key Conclusions and Recommendations

The study identifies vehicle depreciation as a major challenge in the insurance industry. It suggests adding depreciation coverage as an optional add-on to third-party liability insurance policies. However, this coverage should be sold voluntarily under liability insurance policies.

When drafting the Third-Party Insurance Law, depreciation was not considered, and financial obligations were set without accounting for vehicle depreciation losses. Therefore, if insurance companies are expected to compensate for depreciation loss, they must be able to charge premiums based on the accepted risk, or they will face financial losses.

It is important to note that depreciation compensation is a legal right, requiring precise estimation. Given the market conditions, developing a localized depreciation assessment model is essential.

Those interested in accessing and downloading the full Persian text with an English abstract of the research project can find it in the Research Reports Section of the Insurance Research Center’s website: 🔗 Insurance Research Center.