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Articles and Public
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10 Things Your Insurer Won’t Tell You
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 "insuremarket.com" 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.
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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 Austin, Tex., office. "That would
make you unavailable for preferred insurance, and you’d pay a lot more
in premiums."
Twelve states now have laws that limit the use of credit scores
in auto insurance. In Hawaii, for example, the score can be used in the
accept-or-deny decision but can’t affect how much you pay in premiums.
In Louisiana, auto insurers aren’t allowed to include bankruptcies as a
factor. But in the remaining 38 states, the use of credit scores is
growing.
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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 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. In the end, nearly
$40 million was refunded to consumers in the state.
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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 Arizona, using your personal car for business is
cause for an insurer to cancel your policy. Miss a premium payment by just
10 days in Ohio and you can be canned.
Even more common is "nonrenewable," when you’re simply
cut off after your policy expires. In Texas, two accidents in 12 months is
enough for an insurance company to refuse renewal, even if neither
accident was your fault. 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. Your premiums
will go up at least 20%, and you probably won’t be able to get back to
the standard category of insurance for three years, according to Ron
Alford, an author who worked for more than 25 years as an insurance risk
assessor.
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.
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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 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. 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 Neptune City,
N.J., totaled his 1994 Mercedes 500 SEL, and his insurance company quoted
him a CCC value of $9,500. On the report, an eight-cylinder diesel
Mercedes was listed for comparison. Yet Mercedes has never made such a
car. "They came back and gave us $12,770," Bryant says. "CCC
has valued about 22 million vehicles," replies Rozint. "So
you’re probably going to get a couple of people who say that theirs
wasn’t done right."
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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
Dallas and had them stamp the date and who received it" -- Geico
ultimately backed down. In the end, it wrote him a check for the full
amount.
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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.
Stacey Adkins of Parkersburg, W.Va., had more than $7,000 in
medical bills following an accident in which the other driver was at
fault. She didn’t get a lawyer because Allstate (which insured both
drivers) advised her not to. Its offer? Just $1,000. Allstate also
demanded access to her medical records and entered some of that
information into a national database, where other insurers now have access
to it.
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.
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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 Greenup,
Ky., wanted to take it to a garage she knew. But her insurer, Grange,
wouldn’t pay the estimate and told her to take it to Glockner’s, a
nearby GM dealership on Grange’s list of direct-repair shops. When
Goodman picked up the car three months later, the hood color didn’t
match and the trunk leaked. Worse, she found out that Glockner’s had put
used parts on the car. One year later, she’s taken it back to the
dealership for follow-up work eight times and once to another shop.
She’s had more than $20,000 worth of work done -- all paid for by
Grange. "That car had been babied," Goodman says. "It’s a
$20,000 piece of junk right now." Both Glockner’s and Grange
declined to comment.
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9. "We make money by sitting on your
claims."
When Laverne Hayden, a retiree from Lafayette, Ind., was rear-ended in
1994 while driving her 1989 Oldsmobile Regency, the other driver’s
$50,000 liability policy wasn’t enough to cover her neck and spinal
injuries. No problem, Hayden thought, because her Allstate policy included
underinsured motorist coverage for situations just like that. Except that
Allstate refused to pay her claim.
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 Indiana insurance commission to slap a $100,000 fine on
Allstate for delayed claims payments last October. (Allstate is appealing
the fine.)
The average claim takes nine months to settle, according to Bob
Hunter, the director of insurance for the Consumer Federation of America
in Washington, D.C. 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, 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.
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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. "Most small states are pretty
bad," says Bob Hunter. "They don’t have the resources."
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
nine of the last 11 heads of the National Association of Insurance
Commissioners, the central organizing body) left for private-sector
insurance jobs, according to a story last year in The Wall Street Journal.
"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.
Source: SmartMoney.com
. Original
text source:
Money Magazine
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