|Auto Insurance Advice From a Consumer Advocate
Board-certified insurance expert and consumer advocate Douglas "Doug" Heller has worked on public law and regulatory issues related to property and casualty insurance for two decades. In other words, he's the guy who's been around and done it when it comes to auto insurance.
During his career, Heller has written opinion pieces, articles and reports on auto insurance prices in the United States. And provided expertise in insurance-related litigation. Heller was a executive director of the national consumer protection organization Consumer Watchdog for nine years. In addition to conducting research and providing expertise to consumer rights organizations, Heller is a member of the Federal Advisory Committee on Insurance (FACE).
The following is InsureRoom's redacted interview with Heller.
The Three Objectives of Auto Insurance
InsureRoom: What is the Purpose of Auto Insurance? Heller: Car insurance has three goals.
First, there is responsibility. Damage you cause to another person, their car or property is covered by liability insurance. This is called third party coverage because it provides coverage for others.
Second, auto insurance pays to protect you, your passengers, and your vehicle through medical payments, comprehensive, and collision insurance. This is a kind of first-person coverage.
Finally, insurance helps you comply with the law. Cars are dangerous, heavy and expensive machines. Insurance provides protection for drivers, passengers and others against injury or damage caused by someone who would have no way of paying for the damage they caused.
As a result, almost every state requires that we purchase coverage. Auto insurance helps us meet our financial responsibilities under state law.
InsureRoom: Which Of These Main Types Are Required? What is absolutely necessary to be able to drive a car on the road?
Heller: Good. Let's start with the fact that New Hampshire doesn't require auto insurance coverage. I think most people in New Hampshire get auto insurance, but the state government doesn't require it.
Most states require liability insurance for both personal injury and property damage. This, as you recall, is a type of liability insurance. It's the cover we buy to protect other people. Liability means that we are responsible for someone else's injury and damage caused by us. You often hear numbers like 15/30 or 50/100 coverage. These two numbers describe the amount of personal injury insurance you are purchasing. The first number is for an injured person. The second number is the sum of that is paid if multiple people are injured.
There is also a third number in this set. For example 50/100/25. The last number, 25, represents $25,000 in property damage liability. If you tip over and damage someone else's car or a fence on someone else's property, the insurance company will pay up to $25,000 for property damage. Third party liability is the primary coverage that the government requires of most people in every state except New Hampshire.
InsureRoom: How Much Liability Should You Buy?
Heller: Only the minimum purchase is required. The minimum varies from state to state. I think the most common legal liability insurance required by law is probably 25/50. Twenty-five thousand dollars for injuries to a single person, fifty thousand dollars total. The most common minimum liability for property damage is probably $25,000 per claim.
Some states also require uninsured coverage for motorists. This is coverage that protects you if you are hit by an uninsured motorist or anyone else on the road without cover. A handful of states also require something called Personal Injury Protection (PIP). These types of coverage are called first party coverage, which means they cover you for any injuries you sustain, regardless of who is responsible for the accident. It is commonly referred to as coverage or no-fault insurance.
InsureRoom: How Do You Determine What Your State Needs?
Heller: There are four easy ways to find this information: your state insurance agency, your state motor vehicle department, the National Association of Insurance Commissioners (NAIL), or whatever I think is the easiest way to search. Seek. Write your state and the words "minimum car insurance".
There is an additional type of coverage that is not required by the government, but is required by your auto lender. It's called comprehensive and collision protection. If you don't fully own your car, say you have a loan or lease your vehicle, the company financing the car, whether it's a bank, finance company or leasing company, will require a comprehensive and collision check.
This is also a deductible, as it involves damage to your car. The reason these banks and others require you to buy this coverage is because they don't care what it does to other people. They are concerned about what to do with the car in which they have a financial interest. So if you don't own your car outright, you need comprehensive and collision insurance, which you may want even if you own it outright. But you are required to do so, again not by law but by the financial institution .
InsureRoom: What are the consequences if you somehow manage not to buy this cover?
Heller: If you don't buy it, if you let it expire, your bank (or lender) will know about it because they have a relationship with the insurer. And then they'll buy it for you and load it onto your credit as a product called compulsory placement insurance. And that's not only a surprise on your bill, it's also a lot more expensive than the insurance coverage you can take out on your own.
InsureRoom: Because states don't require collision and collision insurance, they have a say in this type of coverage, such as: B. How much do insurers charge, what is the coverage, etc.?
Heller: In the case of damages and comprehensive insurance, the federal states can say how much can be charged for them by virtue of their motor vehicle insurance regulations. They can impose limits or allow companies to set their prices differently in one stater than another, based on different regulatory regimes. But when it comes to the requirement of offsetting and collision, this is regulated by the financial institutions. For example, a bank won't let you buy a comprehensive policy with a $5,000 deductible.
Optional Insurance Coverage
InsureRoom: What Kind of Insurance Coverage Do People Want Even If It's Not Required?
Heller: One that I mentioned that some states require, but not all, is coverage for uninsured and under insured motorists. These covers pay for your injury or damage to your vehicle if you are hit by an uninsured or under insured driver. This driver does not take any financial responsibility for the damage caused by him, as he is not insured.
Theoretically, I could take them to court and sue them for it. However, the main reason why uninsured drivers do not have insurance is often that they cannot afford insurance. Research shows that most people who drive without insurance do not do so because they want to stay with the man. That's because they can't afford the coverage. And if they can't afford auto insurance coverage, it's unlikely they have many assets to cover your injuries or damage to your car.
For this reason, even if your state doesn't require it, it's important to consider purchasing uninsured motorist insurance. By the way, you should really think about getting both uninsured car insurance and liability insurance. Otherwise, you are saying that the value of hurting other people is greater than the worth of hurting you and your car.
InsureRoom: Are there other types of coverage that are not required but are a good idea?
Heller: Clear. The other thing that people like to think about, and with good reason, is car rental coverage. Rental car insurance answers the question, "What do I do in the next 7 to 15 days while my car is out of service after an accident?"
Remember that if someone hits you, and you are covered, your liability insurance should pay your rent. If you are at fault, collision insurance may not pay for a rental car unless you have that driver.
InsureRoom: What types of coverage are sold that aren't helpful?
Heller: What frustrates me a lot is the guaranteed asset protection or gap insurance. It's one of those things that is sold with the base coat when you buy a new car. Basically, it's credit coverage that covers the difference between what you owe for the car and what the insurance company pays if the car is totaled.
There's a kind of theoretical reason for that. You buy your cover, the car's value goes down, and then the car is totaled. You still owe $18,000 for the car. But the insurance company only pays $15,000. So you have another $3,000 that is not covered and that gap insurance would cover.
The problem is that gap insurance has exceptionally low loss ratios, which means that the amount insurance companies pay relative to the premiums they receive is extremely low because, for the most part, it's not a great product acts for consumers. Well, there are certainly people who will find value in it, but it's the rare consumers who will find the product worthwhile. I mention it because it comes up a lot and people hear about it at these car sales pitches. I always lead people to understand that this is a product that works very well for insurance companies, not so much for the consumers who buy it.
InsureRoom: You mentioned you're on the property, and you have gap insurance. Does that even come from your insurance company, or is it some sort of insurance from someone else? Heller: Interestingly, Wells Fargo's lender got into a lot of trouble a few years ago for promoting gap insurance. That was part of their financing arrangement. I think there are big insurers that offer a gap policy, but it's often sold as a standalone product outside your insurer.
I think some lenders offer some form of spread insurance as part of the loan at no additional cost. However, gap insurance is typically a standalone product through a specialist insurer.
InsureRoom: We haven't talked about deductibles yet. Can you explain what they are and how they work?
Heller: Clear. When we talk about deductibles, we're generally referring to the Collision Damage Waiver and Collision part of your policy when it's your fault. This includes damage such as an accident or damage caused by a shopping cart in a game. Or even if your car is stolen.
The deductible is the amount you pay before the insurance company pays. Think of it this way: If you have a $500 deductible and $1000 damage to your car, you pay $500 and the insurance company pays $500. The part you pay is the deductible. In this scenario, if the damage is $499, you pay the full amount and the insurance company pays zero. You can get a lower deductible, but your premium will be higher. And of course you can increase your
deductible and pay a lower premium.
InsureRoom: Given the choice, how do people decide which deductible is best for them?
Heller: You should always prove the value of the bonus you get. You should compare how much you save upfront by increasing the deductible by a few hundred dollars. Try different deductibles. In general, the lower you can keep your deductible, the better if your premium doesn't get too high.
You also have to consider that your vehicle will depreciate in value over time. If the car's value goes down, its comprehensive insurance loses value. Your premium will also go down, but at a certain point, it may not make sense to have coverage on a car that's only worth a small amount of money. Consumer Reports says you should consider dropping this type of coverage if annual premiums exceed 10% of your car's value.
Maintenance Record Keeping
InsureRoom: What if you disagree with the amount the insurance company wants to pay? What if you think your car was worth more than the insurance company says?
Heller: Basically, it's a good idea to keep the maintenance receipts. Just as you can do an annual video update of everything in your house, do the same with your car. Keep accurate and up-to-date records of your car's condition. What is the mileage? What maintenance has been carried out? The more you can prove the condition of the car before the accident, the stronger your case for full value.
InsureRoom: Do manufacturers or dealers keep service and maintenance records, especially on newer cars with data portability?
Heller: Yes, absolutely. Most provide a website with a readout of all maintenance, all work, all work done, and total mileage sent to the central computer.
There's a way I like to think about it, just to explain the theory of the case here. Think of a person with a 1992 Mazda IATA who has a true love affair with their vehicle. They keep it in perfect condition. Another person also has a 1992 IATA because they got it cheap. They go to the junkyard for parts and basically keep it running.
Both cars are 1992 Hiatus, but they're not the same vehicle. So the person who really loves it and keeps it will probably get more for it because it's worth more and has the documentation. So I like to think that doing your part and keeping your car in tip-top shape is worth more than slowly letting it fall apart.
Reassessment of both coverage and insurance provider
InsureRoom: Affects the notion of reassessment of coverage. How often, and when should you do this reassessment?
Heller: I think there are two types of reevaluation. One is the cover for your car. The other is the insurer you use. The auto insurance market is strange. Compete on advertising, not price. So we see GEICO, Progressive, State Farm and all these companies racing with funny characters and athletes and telling us how awesome they are. Their prices vary greatly depending on the market and depending on you and the zip code you live in. I would say buy your insurance policy every two or three years.
If you're shopping for a company, you'll also need to reevaluate your coverage. Not only when the value of your car has dropped and you no longer need comprehensive insurance. Your personal financial situation may have changed, and you would like to extend or reduce your liability cover. Put simply, if you've lost your job, lost your fortune, and spent your life savings, you don't need to protect as many assets and reduce liability insurance to save money.
If your wealth has increased, you may also want to increase your liability coverage. Ask yourself if the coverage you have is enough now that you have more assets to protect.
Discounts and Devices
InsureRoom: Let's examine discounts and also devices provided by the insurance company to monitor mileage and driving habits, as both go hand in hand. First, talk about discounts.
Heller: Clear. Therefore, there are different types of discounts. Some are useful, such as B. The recognition of people for safe driving and accident-free. Some companies will give you a discount if you stay with them for a long time. They call it a loyalty discount. Another is a multiple vehicle discount, which makes sense since most people will not insure one car with one company and a second car with another.
Then there is a multi-line discount offered by many companies. That is interesting. As a consumer advocate, that bothers me a bit, because anyone who owns their own home and bundles it with their car insurance gets a discount. That means someone who doesn't own a home pays more for car insurance, essentially paying their discount. Still, it makes sense to ask for multiple vehicles and packages. Especially if you are one of those people who are thinking about getting life insurance or any other
There's also something you often hear from me and my colleagues in the consumer advocacy world, and that's that insurance companies offer people discounted rates based on things unrelated to how they drive. For example, insurance companies sometimes give discounts to architects, engineers, doctors, or lawyers. And they can get people who are cashiers, janitors, and medical workers to pay more.
Getting a discount if you have a college degree is also a way of saying that people with a high school diploma have to pay extra. Another is creditworthiness. If you have good credit, most companies will charge you less than if you have fair or low credit.
There are others that are less well known. Some companies give a discount if you are married. The same companies charge more if your spouse dies, i.e. a widow's penalty. There is a good student discount which can be useful if you have young drivers in the family as they are more expensive to insure. There is also a "students away from home" discount. If your child lives 100 miles from college, and you don't have access to your car, you may be able to get a discount on your policy because
it isn't like a regular driver, like living at home and driving the car. .
InsureRoom: Good. Now what about the insurer-supplied devices that monitor your driving habits? Heller: The subject of telematics devices is a fluid situation for consumers. Telematics is based on the idea that technology allows insurance companies to assess your driving and the risk of your driving. This includes things like the number of kilometers you drive and the like. These are all well-documented reasons why accidents can happen.
The theory behind the case is that if you prove safe on the road, we can monitor your driving and give you a better rate. In other words, because we go hunting with you. Some people don't like the idea of insurance companies literally monitoring their every move. They don't like it when the insurance company knows where they're going, what time of day they're going.
As a result, these types of devices have not saturated the market. A minority of customers use them. That's because they're not fully tested yet. That's also because insurance companies have been less than transparent about what they charge and how that relates to the rates they charge.
There is also the issue of privacy and what companies do with the data they collect. Are they selling it to tell a local market that we stop by their 4 times a week? People want to be confident that the data is only used for risk assessment.
It's like sitting at a fork in the road. Are insurance companies and regulators in our states going to make sure this is a product that not only encourages safe driving, but also protects consumers from corporate abuse? Or is it just another way for companies to invade our lives and extract more data that they can monetize? We hope regulators and legislators will ensure that we end up with a good version of these potentially valuable products and the discounts that come with them.
InsureRoom: Finally, the subject of consumer protection in car insurance. What are your options when you're upset that the insurance company made a mistake reporting a claim?
Heller: If you are involved in damage that is not right, there are options. Of course, you can go to the company and plead your case. Ultimately, of course, you can go to civil court.
In between, state insurance departments have consumer grievance mechanisms that provide varying degrees of redress. Some states, like California, have an entire customer complaints team made up of people who really know what's going on. That too only gets you so far.
Regulators could really up their game, I think. By that, I mean that consumers shouldn't wait for things to go wrong. Auto insurance is really the only product in America that the government forces us to buy. Most people cannot get to work without a car. We don't have the infrastructure to feed a population that has access to good jobs and doesn't need a car.
It's essentially a must. We are all obligated by the government to buy this product from the private sector, which is unique. In my opinion, this means that legislators and regulators have a special duty to ensure that the providers, the insurance companies, do the right thing. I think there is still a lot of work to be done on the front. So, as consumers, we have a place to go.