Purchase of Collision Insurance Coverage for Automobiles Rented and Used by Employees of the Federal Government

Published by the Government Accountability Office on 1971-05-10.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                  COMPTROLLER               GENERAL     OF      THE       UNITED    STATES

                                                          WASHINGTON.    D.C.         20948

B-158712                                                                                           my 10, 1971

Dear      Senator           Proxmirc:

          Your         letter        of         LIarch   22, 1971,              requested    information       con-
cerning          the            rchase            of collision
                                                         _,-. --_.--- -.... insurance
                                                                             -.__         coverage       for  auto-
mobiles          ren                                       employees              of the ‘Federal      Government.
        Commercial        rental      cars     used by Federal              employees          in the
conduct      of Government           business        are available           under       informal
arrangements        with      commercial          car rental          firms     and under          Gen-
eral    Services      Administration              (GSA) contracts             awarded        to some
of the rental         firms.         Under      informal       arrangements,             Federal        em-
ployees      are usually         given      the same 20-percent                 discount         rate
that    is given      to other         preferred         customers.           Under      the GSA con-
tracts,      a lower      rate     is available           primarily         because        the con-
tracts     are awarded         competitively.               The Government            spends         an
estimated        $9 million        a year       for    rental       of cars,        of which         about
$7.4 million        is incurred           under      the. informal          arrangements.

         Most of the car rental                firms       providing       cars     through    the
informal      arrangements         accept         responsibility           for    collision      dam-
age losses        in excess      of $100 and include                    the insurance       cost
in their      rental    fees.        Individuals           , organizations,             and agen-
cies     who rent    cars     are held         liable        for    losses     of $100 or less.
They may, however,            obtain      full        insurance        coverage       by purchas-
ing a collision         damage waiver               which      the rental        companies     pro-
vide     for  an additional          charge         of $2 a day.

       The car rental                           firms        providing         cars    through   GSA contracts
accept    responsibility                            for      all    collision         damage losses    and in-
clude   the full-coverage                                 insurance         cost    in their   rental   fees.

      We cannot      determine      how much the Government    has spent
for collision      insurance,       because most of these   costs     under
the informal     rental      arrangements   and all  such costs     under    the
GSA rental    contracts        are included  in the overall    rental     fees

          ..                            - 50TH            ANNIVERSARY                   1921-      1971

and are not shown separately.                           Representatives           of GSA and a
large   car rental           firm      informed         us that       if the Government        as-
sumed its        own   risk-of-collision                  loss,     it is possible        that  car
rental     firms      could      reduce       their       insurance       costs     and be in a po-
sition     to offer        lower       rental       rates       under    both   the informal       ar-
rangements         and the GSA contracts.                       Any savings       to the Govern-
ment,   however,         would       be offset          to an unknown          degree   by the cost
of accident          damages.

        The Government            does not accumulate              information          on the
amounts      expended        by employees         to purchase          the collision          dam-
age waiver         for    $2 a day.          In reviewing        the travel         policies       of
several      Federal        agencies,        we found     that     uniformity        was lack-
ing in car rental              procedures        and practices           as they     related       to
the purchase           of the collision           damage waiver.              Some agencies
had regulations            which      allowed     purchase       of the waiver;             some
agencies       had regulations             which    did not allow           purchase        of the
waiver;      other       agencies     l regulations         were     silent      on the matter.
Our review         of selected          rental    vouchers       showed       that,     in prac-
tice,    collision          damage waivers          were allowed          and paid        in most

         In recent         years      there      has been concern               among Federal
agencies       about       Federal       employees’           purchasing         damage waivers.
Many agency          officials          apparently          believe       that     the Government
should     assume        the risk        of loss        covered        by waivers        and that
implementation             of such a policy               would      provide       substantial          sav-
ings.       In June 1970 we issued                    a report         (copy     enclosed)       to    the
Director      , Bureau         of the Budget             (now    Office       of Management           and
Budget),       expressing            our belief         that     a determination             should      be
made whether           it would         be more economical                for    the Government
to assume responsibility                    for     collision          damage losses           of $100
or less       and that         existing        regulations           should      be revised         in ac-
cordance       with      such a determination                   and uniformly          applied
throughout         the Government            e

         In October     1970 the Office           of ?Ianagcment    and Budget     ad-
vised      us that,   although       information       was not available       for   es-
timating      Government       savings,       the high    cost   of purchasing     the

.   *


        collision         damage waiver,         compared     with      the limited      liability
        potential,          and the general        principle        that     the Government          is    a
        self-insurer           appeared     to justify       amending        the Standardized
        Government          Travel    Regulations        to prohibit        payment    of collision
        damage waiver           premiums      in the rental         of automobiles         for     offi-
        cial      business.        The Office       of Management          and Budget       informed
        us that        such an amendment          was being       prepared.

                                                         Sincerely        yours,

                                                                          JIl k-
                                           Assistmt      Comptroller   General
                                                         of the United   States


        The Honorable          William      Proxmire
        United  States         Senate
                     COMPTROLL.EH     GENERAL     OF      THE   UNITED   STATES        Page 1
                                    WASHINGTON.    D.C.     20548

B-158712                                                            June 30, 1970

Dear Mr. Mayo:

        We have briefly  reviewed the travel     policies    of the Department
of Defense and other Federal agencies and have found a lack of uni-
formity    in car rental  procedures  and practices       as they relate  to
the purchase of collision      damage insurance.

      --The Department        o-P Defense has issued instructions           encour-
         aging its travelers,         both military    and civilian,      to buy
         collision     damage insurance      when renting    cars for official
         use.      Some subordinate      commands apparently      have issued
         conflicting     instructions      and are either    discouraging      or
         prohibiting     the practice.       Others seem to be following          a
         permissive     policy;     some travelers   buy the coverage and
         others do not.

      --Similar    inconsistencies      were found in other Federal
         agencies.     Several allow their      personnel to buy the cover-
         age; others refuse on the basis that it is more economical
         for the Government to assume the risk of loss; others have
         not established      any policy.

        Most of the major car rental           companies accept responsibility       for
collision    damage losses in excess of $100 and include the insurance
cost in their      rental     fees.   Individuals      who rent cars are held liable
for losses of $100 or less, but they may obtain full                 insurance   cover-
age by purchasing         a collision    damage. waiver which the rental       companies
currently    provide      for an additional       charge of $2.00 a day,

     Our Office has previously issued decisions  on this matter
(35 Comp. Gen. 553; 47 Comp. Gen. 145; and B-162186, Zanuary 7, 1970).

      The first-mentioned     decision     held that a charge for insurance
which would release the Government from damage liability                incident   to
the hire of an automobile      by a Federal employee is a reimbursable              item
of expense to the traveler.         We said in the second decision           that an
employee who was authorized       to rent an automobile       and who, in the
absence of any administrative        instructions     in the matter,     did not
purchase the collision    damage waiver insurance          was entitled     to reim-
bursement for the $100 he was required            to pay to the rental       company
because of damage to the rented vehicle.
                                                                   Page 2

      The Secretary of the Air Force was advised in our decision of
January 7, 1970, that we had no legal objection to the Joint Travel
Regulations for members of the uniformed services being amended to
provide for reim'lxrrsement of the first $100 of damage sustained by
a vehicle properly rented in the performance of official    business
provided that the regulations,    as amended, specifically excluded
the cost of collision   damage insurance as a reimbursable item of
expense D

       The policy of the Department of Defense is published in the
Military   Traffic Management Regulation, paragraph 316004e(2) B This
regulation   requires that travelers be informed that payment of
additional   charges for collision  damage watvers is in the best
interest   of the Government and the travelers  and is a reimbursable
item of expens e when paid from personal funds.
      We reviewed 3,240 car rental payments in the September 1969
accounts of two Navy Regional F?na.nce Centers.     The payments were
made by disbursing officers    at various Navy installations,      Our tests
showed that collision    damage waivers were accepted in the majority of
instances.    We observed, however, that travelers     from certain commands
were either accepting or declining the waivers with some consistency
while others were not, as illustrated     below:
                                  Commercial      Waivers      Waivers
     Installation                   rentals                    declined
Naval Weapons Center
China Lake, California
Naval Air Station
Point Mngu, California               189         180   (95%)     9   ( 5%)
Naval Underseas Warfare Center
Pasadena, California                 223          95   (43%)   128   (57%)
       We inquired about the policies in effect at other Navy installa-
tions and found similar inconsistencies.       One commander had issued
instructions     prohibiting  the purchase of waivers; another insisted
that they be accepted and that authorization      be included in all travel
orders; and others either had not established a policy or were permit-
ting travelers     to use their own discretion  in accepting or declining
the coverage.
                                                                    Page 3

       sixty-five   psment of the payments fn the two Navy accounts
examined included additional     costs for colb%sfon dabmar~waivers,
totaling     about $YyiYm. Waivers were not purchased on 22 percent of
the rentals and the remaining 13 percent WB~PB     made under Ckmeral
Services Mministra-k-Aon eontrmts.      Rental companies provide full
insurance coverage under these contracts but include damage waiver
costs in their ren%aIL fates.

       In recen% years there has been considerable concern abou%
Federal employeesr purchasing damage waivers.      Many agency officials
apparently believe %ha%the Government should assume the risk of
loss oovered by wafveys and %ha%this wi13 rasul.% in substan%ial savings.
The records of %be %wo Navy Regfonal Finance Centers examined for the
month of September 1969 showed that abmt $9,900 was spen% for waivers
at the daily rate of $1.50 which prevailed at the time of our review and
that these Centers processed only two        ge clafmna from car rental com-
pzmies, each fop $100, We did not at%empt %o develop estimates of
potential    savings be&ase we had been Wormed that the Department of
Defense does not maintain accident OPPdamage loss statisti,cs     for car
      We also inquired about the polfcEes of other Federal agencies and
found that they diffex? in several res c%sc FOP eqle,        the Atomic
Eneqg- Commissfon issued a directive     a%ing %ha%travelers    would no%
be Peimtised fosp extra charges pafd fog collSsPon or liabiEity     insurance--
on the basis of its decision that it wo      be less costly for %he Govern-
ment to absorb, as a direct opera%ing e      se, the cost of damages that
might occur as a result of acofdents %o rented vehicles.     Tha% directive
was issued after we ques%Poned %he need for the additional     Lnsmance
covepage based on the experienced accident ya%e at the Los Alamos Scien-
tifie  EaboFa%ox=ypwhere pespsonnel had been involved in only two aceiden%s '
fn 15 years (ELlILL&V~, dated March 12, 1964j0
      Veterans Adminis%ration regulations       pyovfde for reimbursing travelers
who obtain the eovex+age; the Ma%ional Aeronau%fcs and Space Administration
regulations   fnstmct      travelers  to buy the covepage, The Coast Guard has
issued instructfons      sta%ing %hat %be cost for additional    insu~a.nce is no%
Yeimbursable,     Officiafs     of the Federal Media%ion and'Concflibation  Service,
the Small Business Administration,        end %..e Bureau of Narcotics informed us
that they had no% established a poEiey,
        We believe that a de%ermLna%fon should be made as to whethey 1%
would be more eoonotical for the Govemen% %o assume responsibility         for
collision    damage losses of $lOO and under and that existing regulations
                                                                          Page 4

         we WQ fuPnirking             copy of thPs resport to the    nfstr&or   of
the &neral              Se~kvbcersA    i&r&ion.

                                                    Comptroller General
                                                    of the United St&es
The Honorable Filbert F. Bkyo
Director, E+ureu of the Budget

  U.S.   GAO   Wash.,   D.C.