Ten Things Your Auto Insurer Won’t Tell You
Each of these have very appalling stories. Make sure to read them.
1. You’re Paying Too Much. If you have a good driving record, the odds are you can a better deal on auto insurance. 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. Make an effort to shop for a new policy every year.
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. You could have a spotless driving record, but maybe your business failed, or you have an error in your credit report. That would make you unavailable for preferred insurance, and you’d pay a lot more in premiums. Only twelve states now have laws that limit the use of credit scores in auto insurance.
3. We’re Pocketing Your Deductible. Most states give insurance companies up to 6 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 Texas for failing to refund deductibles. That case set off a chain of 22 additional settlements by major insurers for the same offense, including Geico, Allstate, Prudential, Liberty Mutual and Nationwide.
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. If you want to find out why your policy wasn’t renewed, good luck. Insurance companies aren’t required to divulge specific details. Even more common is “nonrenewable,” when you’re simply cut off after your policy expires. What happens if you get nonrenewed? You’ll find yourself banished to the dreaded high-risk category of auto insurance, along with drunk drivers and Corvette-driving teenagers.
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 ripped off. 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 Chicago control the market and the prices they give out are almost always lower than the book values. CCC looks at cars for sale in your area in similar condition, along with local ads, to determine values. There’s no guarantee that your insurer will pay you even CCC’s figure.
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.
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. If your car has lost some of its value, you can file a supplemental claim to recover the difference. 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.
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 Connecticut and Massachusetts.
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.
9. We Make Money By Sitting On Your Claims. The average claim takes nine months to settle. It’s not entirely the industry’s fault, since most experts say you shouldn’t accept a final settlement until your doctor has cleared you of all possible injuries. That process can take months. But insurance companies are in no rush to write checks. The typical auto-insurance business model 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 under budgeted state agencies, each trying to control its own small corner of a multibillion-dollar industry. In Florida, California and 10 other states, the insurance commissioners are elected officials, making them willing and often eager recipients of campaign donations from the companies they’re supposed to be regulating. In the remaining states, the position is a political plum, appointed by the government. No wonder so many former commissioners (and 9 of the last 11 heads of the National Association of Insurance Commissioners, the central organizing body) left for private-sector insurance jobs.
After reading each story, here is my conclusion after reading this article: Do not buy from Allstate. You’re Not In Good Hands.
