HOW TO BE SURE YOU HAVE THE RIGHT AUTO INSURANCE COVERAGE FROM THE RIGHT COMPANY AT THE RIGHT PRICE.

Herb Denenberg Column for September 16, 2002

Rates for auto and homeowners insurance are going up, but that is only the beginning of the problem. Sometimes premiums are unaffordable, and sometimes coverage is not available at all. Of course, this varies from state to state, location to location, and rating classification to rating classification. Here are some suggestions for getting the best deal on one of the most expensive and important forms of coverage - auto insurance.

EDUCATE YOURSELF ON AUTO INSURANCE. Many people assume insurance is to complex to understand, and leave the decisions to their agent or company. That's the equivalent of letting a used car salesman or a telemarketing hustler make your decisions.

We're just waking up to the fact that even when dealing with doctors, you have to educate yourself, ask the right questions, and participate in the health care delivery decision process. If that's essential in dealing with doctors, it is a hundred times more important in dealing with insurance agents. Compare the two: Doctors are college graduates, with a four-year medical school education, and further training as an intern or resident. Nevertheless studies are documenting an epidemic of medical mistakes, so we must have a super pandemic of insurance mistakes. The insurance industry has a long tradition of incompetent and mediocre agents. So you have to educate yourself to avoid them and their mistakes. You have to look hard for a good one. You can get some initial answers to your questions and obtain educational brochures by calling the National Insurance Helpline at 1-800-842-4242 or your state insurance department.

This process is easier than ever, with an abundance of material available on the Internet. Another good place to start is the site of the Insurance Information Institute (iii.org). About the best site for getting auto rates is InsWeb.com, but there are many others.

SELECT AGENTS AND COMPANIES WITH CARE. Don't take the first agent you find in the Yellow Pages or the first one whose sign you notice. Caution in selecting agents and companies is more important than ever, due to problems in the insurance market caused by the September 11, 2001 catastrophe, the drop in the stock market and the downturn in the economy, and huge catastrophic losses suffered by the insurance industry in recent years. So select the agent as you would any professional such as a doctor or lawyer. Make sure he has a long track record, a good reputation in the community, representation of solid companies, and a willingness and ability to communicate with you. Make sure he does more than send bills and collect premiums and commissions. If your agent doesn't review your coverage and ask you some questions about any changes in your situation, he's not doing his job. The same goes for selecting companies. There are more shaky companies now than ever before, due to recent industry losses. There are five rating services to check, and be sure you're company has a reasonably high financial rating. Two of the services can be found at ambest.com and moodys.com. Insist that the agent or company explain the ratings of any proposed company. You can also check them out on the Internet or in a public library.

SELECT CARS TAKING INTO ACCOUNT THEIR IMPACT ON INSURANCE PREMIUMS. The magazine, Consumer Reports, recently did a study documenting the tremendous premium variations even on vehicles of the same value. Some vehicles are more expensive to repair, are more damageable, and are likely to cause more damage to others. So a small sedan or a minivan has lower average premiums (respectively, $1489 and $1501) than any other category of vehicle. The highest premiums are found among midsized sports cars ($1,906) and misdsized high-end sedans ($1,929), according to Consumer Reports. If you want a high premium, Consumer Reports recommends the Corvette or Toyota Land Cruiser.

SHOP FOR COVERAGE. For decades, buyers of auto insurance have not fully appreciated the variation in premiums from company to company. The recent Consumer Reports magazine study (October 2002) showed that you might pay two, three or four times more than you would if you do careful shopping and buying. Now comparative shopping is easier than ever with all the auto-insurance Web sites. Consumer Reports rated InsWeb.com as the best. You can also get premium information at your state's Insurance Department Web site, at other sites on the Internet maintained by insurance companies such as Progressive.com and independent marketplaces such as quotesmith.com.

INCREASE YOUR DEDUCTIBLES. If you have a low deductible, the value of collecting that extra few hundred dollars will not be worth the problem of having an insurance company that wants to raise your premium, drop you, or both. Get your deductible up to the highest level you can reasonably afford, such as $500 or $1,000. That $1,000 deductible can save you up to 40 percent on your collision and comprehensive, according to the Insurance Information Institute (III), an industry sponsored educational organization.

DROP UNESSENTIAL COVERAGES. If you have two cars, you may not need rental reimbursement insurance to cover you when your car is in the shop. If your car is old enough, the value of collision and comprehensive may not be worth insuring a car of little value. The III recommends dropping comprehensive and collision when the value of the car is less than ten times the premium. You can also scale back various no-fault coverages depending on your own medical expense protection.

BE SURE YOU GET THE DISCOUNTS YOU'RE ENTITLED TO. If you have a passive anti-theft device (one that activates when you leave the car without the necessity to turn it on), you may be entitled to a discount. Some companies also offer discounts for air bags, anti-lock brake systems, and daytime running lights. There are also special discounts for good students (sometimes defined as B+ or better), college students away from home, and various driver-training discounts. There is also a substantial discount if you carry both auto and homeowners in the same company. There is a low-mileage discount. Ask your agent for a list of all discounts.

CONSIDER THE LIMITED-TORT OPTION. In Pennsylvania, if you're willing to give up your right to sue for pain and suffering in the event of a non-serious accident, you're entitled to a substantial discount. Jim Dickey, a State Farm agent in Wayne, Pennsylvania says the discount is 18 percent across-the-board on auto insurance. He says it's up the policyholder to make the decision. But he points out that often the savings from limited tort might be better spent on life and disability for the breadwinner.

BUY ADEQUATE LIABILITY INSURANCE. For most people, the minimum liability coverage required is inadequate. In an age of escalating million-dollar verdicts, incredibly high medical costs, and expensive cars it doesn't take much of an accident to easily bust through a minimum amount of coverage (such as those required in Pennsylvania: $15,000/$30,000,$5000, standing for the maximum of $15,000 per person, $30,000 for all persons

injured in one accident, and $5000 for property damage). If you total someone else's car, you'll be way passed the $5,000 property damage liability limit. The limits for basic coverage in New Jersey are even lower. The III recommends about $300,000/$500,000/$100,000, but it depends on your asset position.

MAINTAIN A GOOD CREDIT RATING. More and more companies are taking into account your credit rating, the way you pay your bills. So a good credit rating can increase your chances of getting the best deal on insurance with the right company.

QUESTION: Why do I have to worry about the financial strength of an auto insurance company? Doesn't the state pay-off when a company goes broke?

ANSWER: You better worry. You are right about guaranty funds, which come to the rescue when an insurance company becomes insolvent. All states have them for property and liability insurance. But they have limitations. They may impose deductibles and maximums. There may be delay in getting payments. But even if guaranty funds paid in full and paid promptly, you still want to go with financially strong companies. Weak companies are more likely to provide weak service and slow claims payments.

QUESTION: If I lease a car, do I still need to buy auto insurance?

ANSWER: You'll have to buy collision and comprehensive, just as you do when you finance a car through a loan. There may also be a maximum on the deductible that you use, such as $500. The leasing company may also require "gap" insurance to cover a special problem that can arise when there is a total loss. Gap insurance will pay the difference between what is still owed on the lease and what the collision and comprehensive pay. Sometimes instead of requiring that you buy a gap policy, the coverage is granted on a group basis and rolled into the lease payments. Finally, whether you lease or buy the vehicle, you still have to buy liability and no-fault coverage, required by law.

QUESTION: Why should my credit rating have anything to do with my eligibility for insurance, or the premium I pay?

ANSWER: Insurance companies claim they have found a strong link between credit history and loss payments on homeowners and auto insurance coverage. Therefore, they take credit history into account in the underwriting and rating process. Not all companies follow this approach. But when you're shopping, it's a good idea to make sure you can present the best possible credit history.

QUESTION: Do I need special insurance when I rent a car? Whenever I'm at a rental counter it is offered to me, and I'm not sure what to do.

ANSWER: The answer can depend on a number of factors. If your car is used for business rather than pleasure, you may still need special insurance available at the rental counter. The answer also depends on the regular coverage you carry. If you have enough coverage on your own car, including liability, collision and comprehensive, you may not need special insurance (unless the car is used for business purposes). But play it safe and consult your agent or company about this question. Two other possibilities should be considered: (1). Some credit card companies provide car rental insurance. Check with your credit card company for the exact terms and nature of coverage provided. (2). If you don't own a car and frequently rent cars, you should consider a non-owner liability policy ($200 to $300 a year), as a more economical way to provide liability when you rent, instead of buying it at the rental counter.

(Herb Denenberg is a former Pennsylvania Insurance Commissioner and consumer advocate.)

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