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17c Formula | Unfair for Diminished Value calculations.

Georgia’s 17c formula, how insurance companies calculate diminished value and why it’s unfair?

17C Formula Diminished Value

Related Article: Read why selecting the right appraiser is critical to your claim.

The Georgia’s Supreme Court, in the matter of “Mabry V State Farm”, asked State Farm to develop a method by which Diminished Value could be measured.

State Farm came up with method for measuring Diminished Value, to which the court gave temporary approval and that applies only to that case.

This methodology or formula is known as “17c” because it’s found in paragraph 17 section c. Most insurers today use this formula to assess loss in value on all claims.

When you negotiate your Diminished Value claim with an insurance company, they will tell you the method for measuring Diminished Value has been “Ordered” by the Georgia Supreme Court or is the “Georgia worksheet”. That is simply not true.

In addition, Georgia’s Insurance Commissioner, John Oxendine, issued a directive to all auto insurance companies doing business in Georgia informing them that his office does not endorse or support the use of the 17c formula.

Mr. Oxendine further ordered all insurance companies to stop telling policyholders that the 17c formula is the last word in the determination of DIMINISHED VALUE.

Georgia Insurance Commissioner Diminished Value Directive

Some insurance carriers, USAA for example, and due to the bad publicity 17c gets (obviously because it’s erroneous), claim that they are using a different formula, this is false, any formula based on a 10% cap is the same as 17c.

Since bad faith insurance is against the law (OCGA 33-4-6 & OCGA 33-4-7 ),  insurance companies will try NOT to tell you exactly how they came up with their valuation, to fight this injustice, always demand a USPAP compliant appraisal report performed by a third party appraiser. Why hire us.

Common 17c formula names:

17c formula components:

17c components are compounded, so you multiply each coefficient with the next !

17c_formula_worksheet

Retail Value: Most Insurance companies use NADA as a guide. As you can see the NADA retail value adjusts for mileage and equipment but not accurately for geographical location. Based on the vehicle listed below it’s $21,950.

nada_retail_loss_in_value

Geographical data make a lot of difference with auto prices, for example a used Porsche convertible would be worth a lot more money in California or Florida than in Alaska or North Dakota.

Not accurately accounting for geographical adjustment, NADA is not a perfect tool to predict used car pricing.

Base Loss of Value:

This is 10% of Retail value. Based on the example above, this would be $2,190.

This is an arbitrary number that makes no sense whatsoever. Different vehicles lose value differently, we cannot claim that a Ferrari loses its value at the same pace as a Kia! This notion of one size fits all is unfair and wrong.

What 10% tells me is that the insurance company wants to put a cap on the loss in value amount and 10% sounded like a good number at the time. But why 10% not 12 or 15? How about if it’s $50,000 BMW, can this car only lose a maximum of $5,000? How about if it was flooded and the airbags deployed and the frame welded, does it still only lose 5 grand?

Why put a cap at all?

Damage Modifier:

1 or 100% Severe damage to the structure of vehicle.

0.75 or 75% Major damage to structure and panels.

0.50 or 50% Moderate damage to structure and panels.

0.25 or 25% Minor damage to structure of vehicles.

0 No structural damage and replaced panels.

The problem with this is that its too generic and simplistic. Let’s take a vehicle that’s been submerged in water, it had no structural damage or replaced panels, does this mean the vehicle lost no resale value? How about if the vehicle was vandalized and needed a full repaint, how about if acid was poured on the hood, according to this its $0.

Is a  Mercedes with a full repaint worth the same as another with factory paint? Not likely!

Is a front bumper replacement that caused airbags to deploy on a Honda Odyssey minivan only a 0.25? Not if the driver is hauling kids and safety is the #1 priority ! Safety conscious buyers will never buy a vehicle with airbags deployed and replaced!

Mileage Modifier:

0 Miles 1.0

20,000 miles 0.8

40,000 miles 0.6

60,000 miles 0.4

80,000 miles 0.2

100,000 miles 0

This means that if the vehicle has 45,000 miles, the modifier would be 0.55 and with 80,000 miles it’s 0.2.

So, you need a brand new vehicle with Zero miles to maximize your payout in this category and a 100,000 mile vehicle is basically obsolete!

How about a 1 owner, 3 year old, Range Rover HSE driven by a Realtor and has 99K highway miles?  if wrecked and suffered frame damage and airbag deployment, does it not lose any resale value?

In addition, can somebody please tell me why we are adjusting for miles again? Did we not get a retail value with mileage adjusted already?

Adding it all up.

So after considering all the components of 17c, let’s add it all up, using the vehicle above. Let’s assume this ford hybrid sustained $12,000 in damage caused by front end collision that deployed the airbags.
$21,950 x 10%  = $2,195 (base LOV)
$2,195 x 0.5 = $1,098  (damage coefficient)
$1,098 x 0.47 = $515 (mileage modifier)

The insurance offer in this case would be $515. Not bad, maybe 1 car payment, most people will take it, not realizing that when they go to trade the vehicle in, the dealer will shave $4,000 to $5,000 off the car’s value! Not fair, is it now?


The bottom line is this: 17c is wrong and unfair. Diminished value can ONLY be obtained with an appraisal based on current market data, a detailed analysis, a physical inspection or assessment NOT by using an arbitrary formula written by an insurance executive!


This article was written by Antoine Rached, commercial reproduction is prohibited without the author’s consent.
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