Not long ago, Tim Wahl, a Missouri agent sent me a copy of a recent Consumer Reports article on how to save money on car insurance. Oh joy, yet another article on how to save money on car insurance by someone who knows pretty much nothing about insurance.
During my 17+ years with the Big “I,” I did a lot of media interviews. I would always cringe when our communications department would ask me to talk to a writer doing an article about how to save money on car insurance. As if we need another article to join the 15,200,000+ articles that already exist. And they all provide the same advice.
And they all (pretty much) say NOTHING about the differences in coverage between policies or the claims practices of the carriers. So, why is this? My guess is that stating the truth, that buying insurance is not simply a matter of few tips or tricks, lessens the value of their articles. The reality is that articles of this type are dangerous and a disservice to consumers. This ignorant, simple-minded approach jeopardizes the financial solvency of American families.
For example, the article cited above says:
“Shopping around pays, too. In California, a driver combining homeowners and auto policies could save about $1,900, on average, by signing up with Geico vs. Nationwide.”
Is the coverage in both policies identical or does the Nationwide policy provide superior coverage and/or claims service? I don’t know, but I do know that, unless you consider such differences, you can’t say that the alleged $1,900 savings is worth it. It might be for some people but not for others. And this recommendation doesn’t take into account that there could be other insurers with far better coverage in the same price range.
As I began to write this article, I got an email from Tim Dodge at IIABNY. A member agent’s insured borrowed a dealer’s car while her car was being repaired. She had an accident damaging the auto. ISO’s PAP Part D insuring agreement says:
“We will pay for direct and accidental loss to ‘your covered auto’ or any ‘non-owned auto’, including their equipment, minus any applicable deductible shown in the Declarations.”
While ISO’s own policy has an excess Other Insurance clause that may be problematic (see this blog post), her policy was not an ISO form. Her policy says:
“We will pay for direct and accidental loss to your covered auto, including its equipment, minus any applicable deductible shown in the Declarations. Your covered auto does not include any vehicle while used as a temporary substitute for a vehicle you own which is out of normal use because of its breakdown, repair, servicing, loss or destruction.”
Notice the policy language differences? There is only physical damage coverage for declared autos, similar to some motorcycle and boat policies. Not providing coverage for nonowned autos is a HUGE coverage gap.
This is something these types of articles never mention because the authors don’t understand it and view auto insurance as a commodity where the only difference is price. So, they focus their entire attention, and that of their readers, on how to reduce that price, regardless of whether the coverage itself might also be impaired. You will find the same kind of irresponsible journalism in many otherwise reputable publications.
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Bill Wilson
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Bill you need to be more tolerant and less judgmental and way more inclusive. It is my understanding that Consumers Union is precisely that a union. They have an American hating view and industry hating view of any industry in America. Robert Hunter has been on their board of directors.
Insurance is no exception. I agree the coverage may be broader in the first case depending on the definition of non owned auto but is the coverage difference worth twice the premium? The dealer usually has coverage on their stock. If you are driving their vehicle with permission and the at fault accident is your fault is there not coverage under the liability pd? If not your fault then where is the liability?
You know that since auto insurance is a volume sold commodity you simply have to meet the consumer expectation of service and coverage not necessarily the absolute best coverage. Market drives the expectation not the expert . VHS always beats beta max in the marketplace.
This was from the Consumer Reports magazine, not Consumers Union. Unless its a non-ISO PAP that covers nonowned auto physical damage under Liability or a state that mandates it by law, there is no coverage for Liability coverage for damage to property in your CCC. Given that the vast majority of auto accidents are driver error, if you’re operating a rental auto, loaner, or test driving a car, damage to it is likely due to your negligence or that of someone else. If it’s your negligence, then your physical damage coverage responds on an ISO PAP on an excess basis. And, no, auto insurance is not a commodity and we all know that consumers think EVERY claim is or should be covered.
Consumer reports is run by consumers union
You are correct about ccc exclusion on personal auto. I did not have access to a PAP and wnet from memeory. My apologies
“…A member agent’s insured borrowed a dealer’s car while her car was being repaired. She had an accident damaging the auto. ” This agent’s insured had this wording on the auto policy he sold her.
This is not mass marketing coverage reduction. This is an example of the fallacy that the agent does a better job than the insured can do for themselves. Straw man arguments are not going to put you on the right side of the market.
Beta Max remains betamax. Is Progressive or Geico or another major online seller providing thsi kind of difference in personal auto coverage? Nice to see the agent’s company is doing it and he apparently discovered it after an uncovered loss. Oops.
“This is an example of the fallacy that the agent does a better job than the insured can do for themselves.”
I don’t think this is even remotely a fallacy. There are awful agents, but the majority are far more informed than consumers. And how many consumers really want to do the due diligence and take the time to just get price quotes? Good agents earn their commissions when placing coverage and again when advocating for customers at claim time if that’s necessary. If a claim is denied on a direct purchase, who is going to assist the insured? I’ve spent the past 28 years assisting good agents in overturning initial carrier claim denials. These denials ranged from a few hundred or thousand dollars to one that was $7 million. Good agents add value. As the saying goes, an attorney who represents himself has a fool for a client. The same is true with insurance purchasing.
“Is Progressive or Geico or another major online seller providing thsi kind of difference in personal auto coverage?”
Yes. Their policy forms are inferior to many others in the marketplace. I’ve done webinars on this. Even subtle differences can equate to big dollars. In one claim involving one of these carriers, a Minnesota insured stored his car in a heated church bus garage building. When leaving, he hit a structural support, causing $60,000 in damage. The policy excluded damage to buildings you rent, occupy, in your CCC, etc. ISO’s PAP also has the same exclusion EXCEPT that it makes an exception for a private garage. $60,000 isn’t material?
There was another claim involving one of the other carriers you mention where someone rented a car and loaned it to someone who loaned it to someone else. There was an accident resulting in death and serious injury to the passengers in another car, including two children. The ISO PAP provides an extremely broad liability insuring agreement for the named insured and resident family members for legal liability for ANY auto, even one you’re nowhere near. The policy of the carrier in question did not provide this level of coverage. so the carrier denied this multi-million dollar claim.
Go to http://www.independentagent.com, click on Education, then on Virtual University. On the left side menu, you’ll see “Featured Resources.” Open that item and click on “Is Insurance a Commodity?” You’ll find an article call “Price Check” with multiple examples of significant coverage differences among policies in the marketplace. How could a consumer EVER know this by doing their own research and picking something off a list on a web site that shows only the name of an insurer and a premium, most often at minimum limits. A good agent will take the opportunity to explain to the customer why a policy or carrier is better for them than another.
At some point, I think artificial intelligence systems can do much of this, but not now. A consumer that places insurance without counsel or advocacy has a fool for a client.
Bill as always thanks for your patience and thoughtful response. That one claim was covered against billions of exposures premiums and events is simply not significant except to the poor soul that came up short. the solution there was a contract or waiver and there would have been no problem instead of stretching an auto policy to find coverage. Sometimes peopel expect insurance to fix pre loss stupidity and that is a very dangerous position to take.
As to coverage, if the market is acceptable to meeting the coverage proffered subject to state oversight, then the market has decided and we are both in the market as is the agent. Would I pay $100 more every six months to have coverage for damage to a rental garage? No and neither will the market. You are still selling beta max in a world run by VHS. Or clinging to a desk top in a world of wearables.
I think the insurance departments should require a minimal level of coverage. Some do this better than others just like agents.
Since agents are servants to the contracted carrier that is like having the district attorney develop a plea bargain. Agents are commission driven. How many times do they ever suggest deleting med pay or UM coverage? Or even drop collision on an older vehicle? Or proactively shop a renewal because they know the carrier is charging an excessive premium? How often do they include useless supplements especially in the non std arena? Fees and commissions and profit sharing are the three legged of their throne.
Again the agent in this case represented the inferior policy and carrier as one of their markets. Cudos to them for noticing a coverage glitch that might impact their insured but he still chose to represent them and take the money proffered.
Agents have a future if they can find ways to make it quick easy and effective within the millennium paradigm. I do not envy them the challenge because millennials live on their hand held device and Bill, they are a bit brighter than our generation ever was. i think they are going to do great things. The few agents that connect are going to do well. The rest are going to become used tabloid news.
I also believe that auto use and ownership as we note it will end in five years or less followed quickly by living quarters but that is off this thread.
Consumers Union owns and publishes Consumer Reports and Robert Hunter was on their board at one time. He wants insurance sold at the gas pump.
“Would I pay $100 more every six months to have coverage for damage to a rental garage? No and neither will the market.”
There is no need to pay more for this. Most decent auto policies include the coverage…it’s the ones that are substandard and/or advertise heavily based on price that cut corners.
“How many times do they ever suggest deleting med pay or UM coverage? Or even drop collision on an older vehicle?”
Why in the world would you delete something as cheap as auto MedPay? You can get (if the carrier will sell it) $100K of primary medical coverage for the cost of a pizza. My son just got $25,000 in MedPay on his condo policy for $7. He has a party and 20 people get food poisoning. MedPay is PER PERSON. That’s a half million dollars of no-fault insurance for peanuts.
Why would anyone ever recommend deleting UM/UIM coverage? Why wouldn’t you want is much coverage from an un(der)insured person for you benefit as you would provide in liability coverage for their benefit? Given the HUGE numbers of uninsured drivers and the GIGANTIC number of drivers with minimum limits, why would any insurance professional RECOMMEND deleting UM/UIM coverage?
Insure.com has an article on how to cut your auto insurance premium in half. It involves reducing $100/$300/$50 liability and UM limits to $25/$50/$10 and eliminating physical damage coverage. They provide a list of vehicles showing the premium reduction. I looked up the approximate KBB values of the listed vehicles and they ranged from $12,000 to $22,000. Why in the world would someone eliminate physical damage coverage to save a couple hundred dollars when replacing the vehicle out of pocket would cost them over $10,000?
Commission-based compensation should not lead unequivocally to agents trying to jack up premiums. Good agents focus on value. They start with identifying coverage options to minimize catastrophic and serious loss, then offer options that provide value. Recommending minimum liability limits and dropping UM coverage for all drivers serves what purpose? Bankrupting 15% of American families?
Bill to address your comments. Thanks for posting.
1. Auto forms should be regulated at the state level and provide a minimum floor of coverage. Damage to a rented garage parking space probably is way above the floor. Decent is a relative and subjective standard. If I could get $100 reduction in premium for not having the coverage trust me I would do so and would most market participants. And there are non auto insurance ways to avoid the exposure if it is present as I reviewed in my post.
I may be my brother’s keeper but my insurance carrier is not . Nor should I pay them premium for coverage that is utterly useless for me. If twenty people get food poisoning from my pizza trust me med pay is not going to stop the lawsuits. Would I be better to increase the cpl instead of upping the med pay? yes. I would be best served if I had done some asset protection and personal asset veiling prior to the event as well. Something insurance agents never mention much less recommend. Also in the food poisoning situation let the carrier choose to comp the medical bills for a release . Or not. Their choice.
Auto med pay is never needed in any state with a guest passenger statute and the passenger is covered under the auto liability. You keep the goodwill. I will keep my money. The money wasted here could be spent to raise liability limits instead.
As for UM the solution is have a decent health plan and buy disability instead of buying a lottery tickets for those exposures with this limited endorsement Same for UIM. Keep the savings and purchase higher limits or keep it in your pocket.
As nto insurance.con article I would keep the limit of 100/100/100. Split limit pay more for less premium than single limit premiums. I would drop the comp or go back to fire, theft and CAC Depending on age and value collison is something to also often eliminate.
I did not advocate dropping physical damage but physical damage, like prescriptions, is best used in moderation. I have a five year old car. Collision is $1,000 a year and the acv is $10,000. I am self insuring. but then I am a reasonable and prudent if somewhat aggressive in that area. A commercial insured can do the same thing and drop the comp back to fire and theft depending on premium and cost.
Insurance is the operation of the law of large numbers through risk pooling. You only pool when the risk is greater than you can afford to lose and you understand the odds. You also do not risk a lot to save a little. You do not pay premium for goodwill coverage . That reminds me of PT Barnum. It is my duty to separate the fool from his money. Buying these coverages is the insurance industry equivalent.
Finally, if I am worth all this money in UIM then I am worth all that money away from a vehicle as well. When has any agent ever mentioned that to an insured much less even offered solutions? Oh and even UIM has limitations of coverage. If I am worth that amount covered then I am also worth that uncovered.
As to the Insurance. com article I agree in part and disagree in part. Never buy any split limit unless you can have the same limit for all three 100/100/100 makes sense. It also is cheaper than 100 single limit Probably why many insurers won’t offer it. As top physical damage drop comprehensive and or use fire, theft and CAC instead to reduce premium. For collision look at the age and value and premium and decide accordingly.
First have asset protection and personal asset veiling performed before buying the insurance. then pick the liability limit that makes sense in your budget. A penny saved remains a dollar earned. Sometimes raising the liability limit is worth more than insuring that six year old car for collision.
You can much more easily handle a new car cost than an excess judgement. Temper this with the reality that the more liability you buy the more the plaintiff bar is not going to release you or settle in a liability case. You become a target for them and a bell to ring.
“Temper this with the reality that the more liability you buy the more the plaintiff bar is not going to release you or settle in a liability case.”
State Farm’s subro department doesn’t care if you’re penniless. They’ll come after you for anything they’ve paid. Aside from that, the reality is that, if you are at fault, they SHOULD come after you.
I am not concerned with subro from Travelers as much as I am from the plaintiff attorney. No fault states say otherwise on your other comment Bill
Bill:
As a side comment, I’ve really appreciated the library of free consumer articles on the Big I website. One that I’ve made extensive use of is “Reducing Insurance Costs… Distinguishing Bad Advice From Good Advice”. In a few instances, clients and friends who ask me about doing business with “the gecko” or “Flo” are interested in hearing my opinion on the good and bad of dealing with direct writers. In turn, I’ve made a point of sharing this article with them and asking that they come back to me after reading the same.
In some cases, they’ve never considered looking at other policies within their personal insurance program to see if changes could/should be made. The article was able to push their thinking to a different line of addressing the issue(s) which they can then discuss in greater detail with their current agent.
Some really good and thoughtful discussions have come about after they’ve read the article. Not sure if you are the author of the article. Nevertheless, that has been a nice arrow to have in my quiver when a neighbor or client will ask me for suggestions on saving money and if it can be done with a high profile direct writer.
Adam, thanks, I am indeed the author of that article. While most of the Virtual University articles are members-only, I wanted to make this one available to anyone willing to read and share it, so it’s public and can be accessed by anyone online:
http://www.independentagent.com/Education/VU/Agency%20Management/Sales/Wilson/WilsonBadAdvice.aspx