Why are some Visa cards dropping collision damage waiver coverage?

As I tweeted out on Friday, I was surprised to get an e-mail from US Bank telling me that my Flexperks Travel Rewards card would no longer have “Auto Rental Collision Damage Waiver and Extended Warranty Protection” as of February 1, 2021. Today I saw Doctor of Credit report that several additional Visa cards will be dropping the same or related benefits.

All of which made me wonder, what the heck is going on?

Virtually all credit and debit cards include rental car collision damage waivers

I’ve written extensively about the nuances of rental car insurance in the past, since it’s a particularly complicated issue for folks who don’t own their own cars. That’s because car owners typically have liability insurance that covers them whether or not they’re driving their own cars, while non-car owners have to patch together liability (you hit somebody) and collision (you hit a tree, or an uninsured driver hits you) coverage.

Since most travel hackers are sufficiently well-to-do to own at least one vehicle, rental car insurance is typically put in terms of the collision damage waiver coverage when you pay for a rental car with your credit or debit card, and is framed in terms of “primary” versus “secondary” coverage, the difference being that secondary coverage kicks in after your car-owner insurance, leaving you potentially subject to penalty premia going forward, while primary coverage sidesteps your preexisting insurance.

This is all extremely boring, since virtually all credit and debit cards offer at least secondary rental car collision damage waivers. All you really need to know is to decline the collision damage waiver coverage offered by the rental car company when you check in.

Until February!

Rethinking value?

The main reason credit and debit cards offer collision damage waiver coverage is that it’s so cheap to provide: most people don’t get into rental car accidents most of the time, most people who do get into rental car accidents have their own insurance coverage, and most rental cars aren’t that expensive. It’s basically the Gerber Life Insurance of benefits: you make a lot of people feel good about their life decisions without ever having to pay out a claim. Paying out the occasional claim to replace a bare-bones Toyota Camry isn’t even a blip on Visa’s balance sheet.

Of course, the flip side is that people who never use a benefit are unlikely to appreciate it, no matter how cheap it is to provide. So theoretically the offer of “ID Navigator Powered by NortonLifeLock and Postmates benefits” to replace collision damage waiver coverage might be more immediately tangible to some current Visa cardholders.

But let’s not kid ourselves: that’s almost certainly not what’s going on.

Changing processors

The most obvious explanation for what’s going on is that US Bank and some related entities (e.g. “Elan Financial Services,” a wholly owned subsidiary of US Bank) are switching credit card processors. Unlike many banks, US Bank has continued to issue both Visa and American Express cards, so I assume that the current transitional period is going to be used to move some or all cardholders from Visa to American Express (or vice versa!).

If you rely on credit card collision damage waiver coverage, be careful!

By February 1 ,2021, we’ll have a much clearer view of the situation. Was the announcement of the discontinuation of rental car insurance benefits a holding pattern while the benefits for revamped cards are negotiated and rolled out, or a permanent devaluation? It’s an interesting question, but not an actionable one.

The actionable question is, what credit or debit card are you going to use to book your next car rental? If you rely on the collision damage waiver coverage provided by your bank, make sure your bank actually offers it.