Simplifying Auto Total Loss Lienholder Payments

Highlights

Auto collision claims deemed a total loss increased to nearly 30% in 2024, per LexisNexis.

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According to Experian Automotive, the average auto loan term for new vehicles is just under six years.

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According to LexisNexis research, the percentage of auto collision claims deemed a total loss increased by nearly two percentage points in 2024, reaching 29%.¹ Car accidents are undoubtedly traumatic for those involved. However, when a vehicle with an outstanding loan is deemed a ‘total loss,’ the situation becomes even more stressful, and the insurance claims process becomes significantly more burdensome for everyone involved.

Consider the following:

Auto Loan Terms: Experian Automotive reports that the average auto loan term for new vehicles is nearly 69 months (just under six years), with used vehicle loans averaging 67 months. This means there’s a high likelihood that a totaled car still carries an existing loan.²
Vehicle Depreciation: A car’s value depreciates approximately 20% in its first year and nearly 60% within five years.³ Since insurance carriers typically pay the ‘actual cash value’ (ACV) of the totaled vehicle, many policyholders find themselves owing more on their loan than they receive in their insurance settlement.

Now, imagine the stress an insured experiences in this situation. On top of that, consider the additional burden of navigating the total loss claims process — a process that is often time-consuming, tedious, and frustrating for all parties involved.

When Auto Total Loss Meets Outstanding Loans

When a car has an auto loan or lease, the financial institution—known as the ‘lienholder’—essentially owns the vehicle and holds the title. Once the loan is fully paid off, the title is released to the owner. Because the lienholder has a financial interest in the vehicle, they are listed on the auto insurance policy. In the event of a claim, payments may be issued to both the insured and the lienholder. This type of multi-party payment introduces a more complex and time-consuming process, further exacerbated by the inefficiencies of paper checks.

Multi-party claim payments have long been a significant pain point for both insurers and claimants due to the authorization, cashing, and deposit process. Many insurance policies list multiple insured parties (e.g., joint owners, spouses, etc.) and claim checks are often issued in the names of all parties. This becomes particularly challenging when the word ‘and’ is used between the names, as it requires all listed parties to endorse the check before it can be cashed or deposited.

In the case of a ‘total loss’ auto insurance claim, the process involves several steps. The insurance adjuster presents a settlement offer to the insured and simultaneously requests a loan payoff amount from the lienholder. Once the lienholder receives the loan payment, they release the title to the insurance carrier. At this point, the carrier assumes ownership of the vehicle and can have it sold for salvage or auction.

While this process may sound straightforward, it often becomes far more complicated in practice — especially when payments are issued via paper checks.

Traditional, Manual Total Loss Lienholder Workflow

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Letter of Guarantee, Lienholder Payment, and Title Release

Obtaining payoff details often requires multiple back-and-forth calls between the insurance carrier and the financial institution. The payoff amount fluctuates daily, and when an insurance adjuster finally receives a ‘letter of guarantee’ with the loan payoff amount from the lienholder, the amount is only valid for 10 business days. If the lienholder does not receive payment within that timeframe, a new payoff amount must be requested, causing unnecessary delays.

These time constraints are further complicated by the fact that the processing, mailing, and delivery of paper checks can take up to 10 business days. Once the payment is received, the financial institution (lienholder) must still process and deposit the check before releasing the title.

Adding to the complexity, the paper check may be issued to both the lienholder and the named insured on the auto policy. All payees are required to endorse the check before it can be cashed, creating yet another hurdle in an already cumbersome process. To complicate matters further, a Hi Marley study found that in 30% of cases, the claimant had to sign for the check upon delivery to their home, leading to additional delays if they were unavailable.⁴

The Benefits of Digital Lienholder Payment

Many of the complications and delays associated with total loss lienholder payments can be significantly reduced by replacing paper checks with digital payments and selecting the right digital payment solution. A comprehensive digital payment platform designed specifically for property and casualty insurers can streamline authorization and reconciliation processes, enabling carriers to pay lienholders more efficiently, obtain transferred titles faster, reduce storage expenses, and recover funds from salvage more quickly. By digitizing total loss lienholder payments, claims are resolved faster, and the overall customer experience is greatly improved.

Delivering More

Are you ready to modernize your payment offerings to deliver more to your customers? One Inc provides a cloud-based, scalable payment platform that enables innovation and growth. Our extensive vendor network offers carriers immediate access to a vast ecosystem of service providers ready for digital payments. By leveraging our next-gen technology and ecosystem partnerships, we deliver a simplified, seamless, and elegant customer payment experience. One Inc’s integration with Hi Marley’s two-way texting application delivers combined functionality that allows adjusters to support the claim process from claim intake to claim payment, entirely through text messaging. With One Inc by your side, continually adding value, cloud-based digital payment success is achievable. Learn more.

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