1. “When I say this is a good policy, I mean it’s good for me.”
While agents can help you navigate auto policies, some may not have your best interest at heart: Often, large auto and home insurers use “contingent commissions” to compensate agents who sold their policies. These fees come in two types: “steering” commissions for signing customers with a particular carrier, and profit-based commissions, when clients don’t file a lot of costly claims. The concern with the former is that unscrupulous agents push certain policies to reap larger commissions; with the latter, they might delay or discourage claims.
How to protect yourself? Ask about commissions, and have prospective agents explain their recommendations.
2. “Young drivers can't catch a break.”
Statistics show that drivers under age 25, especially male, are in a high risk group, and have difficulty getting insured. But the specifics are startling: Drivers in New York under the age of 19 pay a median auto insurance rate that is over 100 percent higher than drivers age 60 to 74, according to a 2009 survey published on InsuranceRates.com.
It typically takes three years of driving experience to be quoted a lower rate, according to AllInsuranceInfo.org's site. But there are other ways to ensure a better rate in the short term. For example, avoid sports cars and opt for a car with a lower engine capacity. Also ask your insurer for ways to score a lower premium. According to information posted on the AllInsuranceInfo.org site, some insurers will give a lower rate to young drivers who complete a defensive driving course.
3. “Spotty credit? That’ll cost you.”
Since the 1990s, insurers have discovered a strong correlation between low credit scores and filing lots of claims. Today, more than 90 percent of insurers use credit history in their underwriting, according to the Insurance Information Institute, a New York-based organization. Although consumer advocates argue that it unfairly penalizes the poor, it can also bite the middle class, says Birny Birnbaum, executive director at the Center for Economic Justice. After all, “87 percent of families in bankruptcy are there because of a job loss, medical catastrophe, or divorce,” he says.
Since many insurers do factor in credit history, it’s important to get your credit report from each of the three bureaus—TransUnion, Experian, and Equifax—and check them for errors before you shop for insurance.
4. “How do we set premiums? That’s for us to know and you to find out.”
As insurers continue to adopt complex pricing systems, not everyone is seeing savings. Why the disparity? For starters, premiums vary widely by state.According to a 2007 study from the National Association of Insurance Commissioners, the average year-long policy in 2005 cost $949—ranging from a low of $664 in Iowa to a high of $1,343 in the District of Columbia.
What’s muddied the waters even further are the formulas used to set premiums for individuals. Twenty years ago most insurers sorted customers into four or five pricing tiers, based on where they lived, their age, and their driving record. Over the past decade, hundreds of variables have been added to the mix, including credit history, homeownership, and limits on past policies. Since each insurer interprets these variables differently, it’s even tougher for consumers to get a handle on the system.
5. “Your repaired car might look and run like new, but it’s worth a lot less.”
As many policyholders know, when the other party’s insurer is paying for repairs after an accident, you have the right to opt for original manufacturer parts instead of generic aftermarket ones. But even with the best parts and service in the world, a fully-repaired vehicle will often be worth less as a used car or trade-in than an identical car without the accident history.
Luckily, it’s not a total loss—even if you can’t collect diminished value, you can probably write it off on your tax ret urn. (Consult your tax adviser.) That’s why it’s a good idea to hire a post repair inspector, both to ensure that the work was done properly and to assess diminished value.
6. “Totaled your car? Good luck collecting its full value...”
Policyholders may be surprised that insurance companies don’t typically get their valuations from such standard sources as Kelley Blue Book or Edmunds.com. Instead, many use claims servicing companies, which consult proprietary databases to assess valuation. Some firms canvasses dealerships in local markets to build a database of comps.
If your car is totaled, you needn’t accept your insurer’s first offer. Go to Edmunds.com or AutoTrader.com to find better comps, and call the sellers listed on the insurer’s report to verify their price. No dice? If it’s a matter of $1,000 or more, hire your own appraiser and go through an appraisal- arbitration process.
7. "... and we’re more likely than ever to declare your car totaled.”
Given the haircut you’re likely to take when replacing your totaled car, many policyholders would prefer to have repairs covered in all but the most severe accidents. But that’s becoming increasingly difficult.
What constitutes “totaled”? An insurer’s rule of thumb is to deem a car totaled when repairs would exceed 70 percent of the vehicle’s value. And if your car’s frame is damaged, it can remain a safety hazard even when repaired. But if the damage is limited to a few minor, albeit expensive, components, you can appeal your insurer’s decision to total it.
8. “Your mechanic works for us.”
The auto insurance industry has long relied on direct-repair programs, which function like HMOs for ailing cars, with insurers maintaining lists of recommended repair facilities. In the last decade, some insurers have taken the relationship a step further; in 2001, Allstate announced it was buying a nationwide chain of repair shops.
Whether it’s a network of preferred providers or outright ownership, such coziness between insurers and body shops makes consumer advocates nervous. It lets the insurers take too much control over the repair process. And when you have pressure to keep costs low, you sometimes see shortcuts in repairs.
More often than not, you have a choice whether or not to use the insurer-recommended shop. So should you? It’s convenient, and in some cases, policyholders who take their cars there can get their deductible reduced or waived. If you do take the “in-network” route, hire a post-repair inspector to make sure repairs are done properly.
9. “Brand loyalty is for suckers...”
As more insurers adopt elaborately-tiered pricing strategies, rates may differ dramatically from company to company. You might be better off comparison-shopping once a year rather than automatically renewing your policy--especially if your own circumstances change. Start by getting online quotes from Geico and Progressive Direct. Also be sure to ask an independent agent for quotes, as well as from companies like Allstate and State Farm.
10. “. . . but be careful switching carriers—it could cost you.”
No doubt you’ve seen the warnings in your policy that not paying your premiums can cause your policy to be canceled. It might lead you to think that when you want to switch carriers, dropping the old insurer is as simple as stopping payment. Not so. If you don’t pay a bill for the next term, chances are your carrier won’t simply cancel the policy—it may also report your nonpayment to the credit bureaus. (Most insurers are required to give you a certain number of days’ notice before cancellation.) Also, your new carrier will see a cancellation in your history, which could mean you’ll pay higher rates or be declined.
To avoid the issue, get the proper documentation. Ask your current carrier for a policy cancellation form, and make sure the timing is right—that the ending date of your old policy coincides with the start date of your new one.