Should I go directly to Small Claims Court or am I required to contact the other driver first and allow him to settle?

directly to Small Claims Court

You need the help of an attorney who handles these kind of claims. They have experts in the area of dimunition in value, who establish the loss in value of the automobile.

No, you are not required to contact the other driver before filing suit. However, since the other driver is insured, if you file suit, you may rest assured that the insurer will hire a lawyer to represent your adversary. If you don't have a lawyer, you may win in small claims court, but if you do, your adversary will almost certainly appeal to a county court at law, where the lawsuit will start over de novo (from scratch). At that level, there are complex and fairly strict rules of procedure and evidence one must follow and, therefore, without a lawyer you would almost certainly lose. Therefore, you would be well advised to consult a lawyer now, before taking any legal action. Good luck.