10 Things Your (Auto) Insurer Won’t Tell You
Smart Money,
February 1999
1. "You're paying too much."
2. "Forget your driving record. We want your credit
rating."
3. "We’re pocketing your deductible."
4. "We can dump you on a whim."
5. "We'll stiff you if your car is totaled..."
6. "...and even if it isn't."
7. "You need a lawyer."
8. "Our body shops work for us, not you."
9. "We make money by sitting on your claims."
10. "We own your state insurance commission."
1. "You’re paying too much."
Can you get a better deal on your
auto insurance? If you have a good driving record, the odds are you can. After
years of 5% rate increases, most major companies are either leveling out their
prices or even rolling back rates. Why? Profits are on the upswing, and more
significantly, accident rates are going down.
"You should shop the policy
every year," says Brian Sullivan, editor of the Auto Insurance Report, an
industry newsletter. A couple of services make that process easier: For $12,
Consumers Union (800-808-4912) will send you auto-insurance price information
for 24 states. And Intuit’s insurance Web site offers free quotes for 25 of the
most populous states.
If you now buy your insurance
through an agent, consider one of the direct-response companies, such as Geico
or Amica. They pay no sales commissions, which means
cheaper policies for you.
2. "Forget your driving record. We want your credit
rating."
A lot of factors are used to
determine your premiums, including your driving record, age, the type of car
you drive, marital status and, most important, your address. But increasingly,
companies are using your credit history as an indicator of how likely you are
to file a claim.
A San Rafael, Calif., company
called Fair Isaac sells a formula for your "credit score" --
essentially your credit history boiled down to a single number -- to credit
agencies, which then provide it to auto insurers. Want to find out what your
credit score is? You can’t. Fair Isaac’s formula is secret, as are the numbers
that get assigned to specific consumers.
"You could have a spotless
driving record, but maybe your business failed, or you have a serious medical
condition in your family, or you have an error in your credit report,"
warns Rob Schneider, an attorney at Consumers Union’s
Twelve states now have laws that
limit the use of credit scores in auto insurance. In
3. "We’re pocketing your deductible."
If you're hit and it’s the other
driver’s fault, his insurer is supposed to pay for damages to your car. But if his
insurer stalls, you can file a claim on your own collision policy and let the
two companies fight it out later. If your insurer ultimately wins the claim,
you should get your deductible back, right? "If there’s clear fault,
yes," says Brian Sullivan. Unfortunately, it doesn’t always work that way.
Most states give insurance
companies up to six months to go after the money owed by another company. After
that, they’re required to either give you the deductible or let you go after
the other company on your own. If they win only a partial settlement, a whole
new set of rules kicks in. Usually, the winnings are split between you and your
insurer.
In 1996 State Farm paid out a $22
million settlement in
4. "We can dump you on a whim."
The first 30 to 60 days after
signing up for insurance is called the "binding period," and during
that time the insurance companies can cancel your policy for just about any
reason, often without explaining why. Maybe they’ll discover something they don’t
like in your driving record or credit history. Or, if you file a claim, they
might suddenly consider you a bad risk. After the binding period, state laws
vary on when you can be dropped. In
Even more common is
"nonrenewal," when you’re simply cut off after your policy expires.
In
If you want to find out why
your policy wasn’t renewed, good luck.
The formulas that make decisions like these are proprietary, meaning that the
insurance companies aren’t required to divulge specific details.
5. "We’ll stiff you if your car is totaled..."
Your collision policy entitles you
to fair market value for your totaled car’s worth. But the amount you actually
get could leave you feeling shortchanged. Until the mid-1990s, insurers
determined car values by averaging the prices in the National Market Reports
Automobile Red Book and the National Automobile Dealers Association’s Official
Used Car Guide. Now companies like CCC Information Services in
CCC looks at cars for sale in your
area in similar condition, along with local ads, to determine values. But where
the old book listings used to provide a "list" price (what the car
might be offered for on a used-car lot), the CCC number represents a
"take" price (the absolute lowest price that a used-car dealer would
accept for it). Of course, there’s no guarantee that your insurer will pay you
even CCC’s figure. "Our customer is the insurance company," says CCC
senior vice president Jack Rozint. "We don’t provide the settlement amount."
What can you do to protect
yourself? When your insurer hands you a CCC report, it usually lists the actual
cars the company used for comparison. Jot down the vehicle identification
numbers to make sure they actually exist and that there are no mistakes. Jim
Bryant of
6. "...and even if it isn’t."
Ever hear of "diminished
value"? The insurance companies are betting you haven’t. Even if your car
is repaired after an accident, there could be flaws in the repair process.
Either way, your car’s bound to be worth less in the resale market, and your
insurance company is obligated to pay you the difference.
"By just raising the issue of
diminished value before the car is repaired, consumers can get a much better
deal," says James Lynas, president of Wreck Checks, a service that will
examine your car after it’s been repaired and tell you whether it’s lost some
of its value. If it has, you can file a supplemental claim to recover the
difference. (The service is available in 34 states; call 770-956-8700. Fees
range from $75 to $150.) Lynas says that while insurance companies may try to
fight you on it, diminished-value claims have been paid out in every state and
by every major insurance company.
When Jay Archer’s Lexus had $9,300
worth of repair work done after a hit-and-run accident, a Wreck Check assessor
told him it had lost $3,964 of its value. His insurer, Geico, denied the
supplemental claim on 10 separate occasions, Archer says, but through pleas,
demands and arguments -- "I brought all my letters down to the Geico
office in
7. "You need a lawyer."
Insurance companies don’t like to
deal with lawyers, but few go to the lengths that Allstate does. Since 1993 the
company has been sending brochures to its customers who’ve been in accidents,
advising them that they don’t need a lawyer. Allstate even tells this to people
insured by other companies after they’ve been in an accident with an Allstate
customer. Fourteen states have complained about the brochures. The company
claims it’s a freedom of speech issue and still sends the brochures out in
every state but
Stacey Adkins of
Adkins hired an attorney who won
her a settlement of $12,000 for her injuries and is now suing Allstate for
invasion of privacy, for lowballing on its initial offer and for unlawful
practice of law. Allstate will not comment on specific cases.
8. "Our body shops work for us, not you."
Most insurers have a list of body
shops that they prefer to use through what’s called a "direct-repair
program." It’s similar to managed care, in that you can take your car
elsewhere but your insurance company might not pay the full cost of repairs if
you do. The catch is that these direct-repair body shops get on the list by
keeping their costs low -- sometimes spending less time on repairs, using
cheaper parts and overlooking damages that only an expert could spot. State
Farm’s Service First program even includes a gag clause that prevents shop
owners from talking to customers about their cars until they’ve cleared it with
State Farm first. And because the companies hold so much clout, many shops
can’t stay in business unless they stay on those preferred lists.
After a car ran into her 1995
Camaro, Kim Goodman of
9. "We make money by sitting on your claims."
When Laverne Hayden, a retiree
from
Hayden then hired a lawyer who
filed for arbitration against Allstate and won $110,000. Because her policy was
capped at $100,000, the lawyer offered to take only that much, but Allstate
refused to pay any of it, demanding a trial. Her lawyer had to file suit in
federal court before Allstate finally backed down and paid Hayden the full
amount of her claim. Total time from accident to settlement?
Nearly four years. Cases like hers are what led the
The average claim takes nine
months to settle, according to Bob Hunter, the director of insurance for the
Consumer Federation of America in
But insurance companies are in no
rush to write checks. The typical auto-insurance business model, Hunter says,
is to break even on premiums -- that is, to pay out about the same amount that
the firm takes in -- but profit from investing the money while the company
holds it.
10. "We own your state insurance commission."
The insurance industry is
regulated at the state level, unlike banking and securities, even though many
of the 1,500 insurance companies do business in more than one state. The result
is a patchwork of often underbudgeted state agencies, each trying to control
its own small corner of a multibillion-dollar industry. "Most small states
are pretty bad," says Bob Hunter. "They don’t have the
resources."
In
"Insurance departments serve
a dual function: financial regulation and consumer protection," says Nan
Nases of the Illinois Department of Insurance. "It’s sometimes a fine line
to walk." If you file a complaint, don’t expect much. In some cases, the
state may be able to get an inattentive insurance company to at least return
your phone calls. But only in extreme situations will the insurance commission
think about legal action. And if any money is collected in fines, it goes to the
state’s coffers, not yours.
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