Examining the Issue of Vehicle Depreciation Caused by Accidents and Incidents

Authors: Sayed Mohammad Taqi Fadhl Hashemi

Coordinator: Azadeh Bahador, Dr. Maryam Ethnoashari, and Ismail Fallahi

Abstract

Accident-related damages can be broadly categorized into two types: direct and indirect. Direct damages are those that are visibly apparent and are compensated through the insurance payout. In contrast, indirect damages are not immediately visible but result in a reduction in the vehicle's value. This reduction in value, commonly referred to as "vehicle depreciation," occurs when a car is involved in an accident. Despite repairs being carried out to the highest standards, a vehicle’s market value will typically decrease following an accident, as potential buyers are reluctant to pay the pre-accident price for a car that has been damaged.

Vehicle depreciation is defined as the difference in a car's market value before and after an accident. Notably, most insurance policies globally cover the depreciation of the damaged vehicle, rather than the one responsible for the accident. While the issue of depreciation is widely acknowledged in many countries as a recognized liability, claims for compensation have often been directed toward the insurance industry. This unresolved issue has led to widespread dissatisfaction among policyholders and victims, eroding trust in the insurance sector. In many cases, policyholders are forced to file lawsuits and endure lengthy legal processes to receive compensation for the loss in value.

This research project was conducted in five distinct sections: 1) Investigating the issue of vehicle depreciation within the country; 2) Reviewing statistics on depreciation claims paid out by insurers; 3) Analyzing the treatment of depreciation in foreign insurance markets; 4) Conducting interviews with industry experts to identify challenges and potential solutions; 5) Proposing actionable, localized solutions based on both domestic and international practices, alongside results from the expert interviews.

Keywords: accident, car damage, car depreciation, compensation, filing claim