Archives for August 2018

What Is a Damage Waiver and How Does it Work?

A damage waiver can go by several names: collision damage waiver (CDW), damage waiver or loss damage waiver (LDW). These are not insurance products and, in the rental industry, do not constitute the sale of insurance. However, most states have defined regulations regarding how you sell these products, your rental agreement wording and how these products are defined. Some states even dictate how much you can charge for a CDW.

If they are not insurance products, what are they? A CDW is a contractual waiver between you and your RV renter. It prohibits your insurance carrier from holding the renter responsible for any damage — and paying for any damage — to the RV rental while it’s in the renter’s possession. This means that any claim paid out on an RV rental covered by a CDW will be paid completely by your insurance company, which will not be able to recover the costs. This will affect your loss experience on your insurance policy. Rental insurance is a very limited product with few carriers. A large collision loss could jeopardize your rates or even your ability to secure insurance. While the sale of CDW may seem like a great way to make “easy” money, it’s a gamble.

Many RV rental companies prefer a “partial” or “deposit” waiver, meaning that they will only retain the renter’s deposit in the event of a loss to reimburse their insurance deductible. While in theory this works well for rental companies, it still exposes them to the same gamble, as it only accounts for the deductible amount, not the payouts for the remainder of the claim. Furthermore, it is illegal in many states, so before instituting this, make sure they you are compliant with state statutes.

To put this into perspective, let’s say you sell a CDW for $10 per day for a one-week rental. The vehicle has a $1,000 comprehensive and collision deductible and comes back with damage that totals $2,350. Because you sold the CDW, your insurance will pay for the entire claim minus the deductible. If you operate in a state that does not allow a partial CDW, then you’ve earned $70 for the CDW and now have to pay out of pocket for the $1,000 deductible. Even if only one in 10 rentals results in damage, you’re still expending extra money. If the claim doesn’t even make the deductible, then you are stuck paying the entire repair.

When an RV is damaged in an accident, each individual model has many variables that usually make a repair much more expensive: fiberglass vs. aluminum work, custom parts, etc.

When does the sale of a CDW work for RV rentals? Most underwriters would respond “rarely.” S CDW can work if you have the “perfect storm” of good conditions. These conditions are as follows:

  1. If it’s only occasionally used, and you have a large fleet (over 50 units) that can absorb a larger loss
  2. If you have lower-value vehicles
  3. If you’re renter does not evoke “red flags,” i.e., cash rental, no insurance, walk in, etc.
  4. Your rental unit is an auto body type of unit only.

Some rental companies use the sale of a CDW as a “small claims fund,” where they set aside any monies earned with the CDW to pay for small claims that would otherwise be submitted to their insurance carrier. This can work in your favor by keeping nuisance claims off your record. But, remember, one very large claim can undo any good that comes from this practice.

CDW is not the same as supplementary liability insurance (SLI). Briefly, SLI is a separate insurance policy that you, as the rental agent, would obtain and sell to your renter. Some states require an insurance license to sell this product. This is not part of your rental vehicle insurance. However, RV rental does not have any true SLI products available at this time.