How Insurance Company Settlement Offers are Calculated

Learn why you may receive a low settlement offer and what to do about it

After a car accident, you will probably receive a settlement offer from the insurance company representing the at-fault party. This offer may differ significantly from the amount of compensation your motor vehicle accident lawyer has led you to expect.

How is this possible?

Because there is no single formula for calculating damages in a car accident injury case. Instead, insurance companies have their own proprietary formulas for calculating damages, which are naturally set up so as to pay out the least amount of compensation possible in any given case. Since insurance companies do not disclose their formulas, there is no way to know exactly why they decided to offer a particular amount. However, we can get a good idea of their thought process by considering the following points.

Types of Damages Considered

Following a car accident, you may be eligible for a variety of different types of damages, including:

  • Medical bills
  • Lost wages
  • Lost earning potential
  • Property damage
  • Pain and suffering

The insurance company will consider all these types of damages in their settlement offer. However, they may have a different idea of what it should cost to repair your car or how much you deserve for pain and suffering than you do. In fact, many initial settlement offers do not account for pain and suffering at all.

Setting the Reserve

As soon as you report an accident to your insurance company, they will try to estimate the amount they will have to pay out on your claim. This estimate is called the reserve. Setting the reserve early in the case is advantageous to the insurance company because it allows them to put a value on the case before you really know how much your entire medical treatment will cost, whether or not you will be left with chronic pain or other lingering symptoms, and how much pain and suffering you will experience. Once the reserve is set, it is very difficult to get the insurance company to consider additional damages that will raise the reserve.

Policy Limits

No matter how high your medical bills are and how much compensation you deserve, an insurance company will not pay out above the policy limit. So if you have $100,000 in damages but the at-fault party’s policy is limited to $50,000, your settlement offer will automatically be capped at $50,000.

What To Do If Your Settlement Offer is Too Low

If you have received a settlement offer that you believe is too low, you need to contact an experienced motor vehicle accident lawyer like The Law Offices of Larry H. Parker ASAP. We can negotiate with the insurance company to convince them to provide a better offer that is fair and adequate to cover your current and future damages. If negotiations fail, we can file a lawsuit against them. If you have more damages than can be paid within the policy limits, we can explore the possibility of suing the at-fault party directly for additional damages.

To discuss your case for free, call us at 800-333-0000 today.

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