If you've been in an accident and your car is wrecked, your insurance company is likely to total it, send you a check for its market value, and then send the car to an auction pool. (No, it might not get crushed and hauled off to the scrap heap, as you might think.) Insurance companies build their expected losses into auto premiums, and as a result they generally don't lose money after they pay your claim. In fact, if your insurance company totals your car after an accident, the company is still likely to make money from your business.

What a salvage title means

Insurance companies are required to get salvage titles for totaled vehicles in many states. A salvage title means that the vehicle must go through a department of motor vehicles inspection before it can get back on the road. Insurers obtain the salvage title from the state department of motor vehicles once the vehicle has been totaled, but only in states that require salvage titles. Some states don't mandate salvage titles for totaled vehicles, in which case the car insurance company will get a regular title for the totaled vehicle. Both salvage and regular title totaled vehicles can end up back on the road, but more on that later.

Going, going, gone!

Around 10 percent of all collision claims result in totaling, and the majority of those totaled vehicles (80 percent or so) go to auction. A big auction house like Copart, headquartered in California, or Insurance Auto Auctions (IAA), based in Illinois, will funnel between 200,000 and 500,000 cars through its doors every year. The number of cars an auction house handles depends on whether it holds the majority market share of the auto auction business in a state and how big the state is.

Typical auction houses will host sales once per week, but some bigger houses will host two. A busy Copart branch in New Britain, Conn., for example, has 400 to 500 vehicles up for sale at its weekly auction. The branch sells about 450 cars per auction and it takes 60 days on average to sell a vehicle once it has been issued a salvage certificate.

At IAA, the situation is much the same. IAA auctions approximately $200 million worth of salvaged vehicles per year. It generally takes the company between 60 and 90 days to sell a mangled vehicle once it hits the auction lot.

Most of the cars at auction are sold to dismantlers and salvage yards. Consumers generally aren't allowed to enter the auctions or purchase totaled vehicles, and often don't even know their old car is across town being looked over and bid on. Most states shut consumers out of auto auctions because of successful lobbying by the auto-salvage industry.

Dismantlers naturally want the salvage price to be as low as possible. In the markets where the public is allowed to participate in the auctions, the price of the vehicles is elevated. On the other hand, aution houses like Copart and IAA would like to see more states allow consumers into auctions because that would help the companies' bottom lines.

Big bucks at stake

The auction price never equals the market value of the car, but State Farm and other insurance companies do recover a substantial dollar figure from the 500,000 vehicles they total. Auctioneers Copart and IAA do between $150 million and $200 million worth of sales in each company's fiscal year. Insurance companies and auto auctioneers aren't eager to reveal how much of those sales insurance companies take, but it's safe to say it's more than 50 percent.

Insurance companies inadvertently inviting theft?

A clean titled car does not have to go through a rigorous department of motor vehicles inspection after it's sold at auction, and clean titled cars generally fetch a price two to three times higher at auction than a salvage titled car will. Law enforcement sources tell Insure.com that insurance companies may be inviting more theft through their practice of "clean titling."

Since clean titled cars don't have to go through the motor vehicle inspection, tampering with VINs often takes place. An unscrupulous salvage company might buy a clean titled car, and take that car's VIN and put it on an identical make and model to resell. These salvage companies, often connected with auto theft rings, will steal a car and slap on the clean-titled VIN to cover their tracks, sources say.

"We salvage-title vehicles because we don't want an unsafe car back on the road," says Kitty Miller, a spokesperson for Farmers Insurance. "However, what happens after we sell the car to the auction house is not our responsibility."

State laws to blame?

Insurance companies do acknowledge there are some situations in which a theft ring would buy a clean-titled car, steal a model that's exactly like it, then switch the VINs. However, the insurance industry does not feel it's aiding theft in any way by clean-titling vehicles after totaling. "Our obligation is to abide by the [state's] statute," says Ed Weidmann, a spokesperson for State Farm. "If laws in particular states don't require salvage-titling, those laws are helping the thieves," he adds.

However, State Farm doesn't go out of its way to salvage-title cars in states that don't require it because the company stands to gain financially from a clean-titled vehicle. Other insurers also admit that when salvage-titling is not required by a state, they will not go out of their way to get a salvage title.

Whether state laws or insurance company clean-titling, compound auto theft is almost impossible to track. Theft statistics that are available from the National Insurance Crime Bureau are incomplete, and the amount of VIN-switching fraud that goes on is impossible to measure, insurance company and law enforcement sources say. However, what is clear is that the practice of clean-titling cars sometimes opens the door for theft rings to steal cars and switch VINs.