Several great comments on this thread! I find it a challenge to choose where to start with information. The rating criteria and variables are numerous and complex on both auto and fire (homeowners, condominium / townhouse and renters) policies.
I previously owned a multi-product line insurance agency for 24 years in Colorado. Insurance Agents have a
fiduciary responsibility...an equal position of trust between the client and the company. I was an 'Attorney Type of Agent' and not a 'Car Salesman Type of Agent'...and there is a big difference. Furthermore, my clients, the claims office and underwriting department all had this understanding. On several occasions, I used the policy language and wording to force adjusters to settle claims more equitably and fairly for clients...both as an insured and as a claimant with another insurance carrier.
FOUR (4) IMPORTANT CONCEPTS TO KNOW:
- The Principle of Indemnity - Applies to both insureds and claimants. The insurance company is contractually obligated to restore their insured or a claimant back to their original position, not any better and not any worse.
- Insurance is designed to protect the policyholder from Large Catastrophic Losses.
- Diminished Value Compensation - Applies to auto insurance. Used vehicles with prior damage have a lower resale value. The greater the damage, the greater the diminished value (Example: Frame Damage).
- Replacement Cost Value (RCV) vs Actual Cash Value (ACV) - Applies to homeowners insurance.
1. A major and prominent rating variable for both auto and fire products is a 'score' derived from a Risk Model developed by Third Party Actuarial Firms that ties the customer / insured / policyholder appetite for or adversion to credit, debt, etc. to losses. These Risk Models were developed in the 1990's and put into the rating structure around 2000+. Banks and Credit Unions have used Risk Models for making loans, extending credit and interest rate determination for many years. The insurance Risk Models were built using a web of statements and questions and then overlaid with the actual loss data (claims) of millions of policyholders. After that, credit bureau reports were pulled on actual policyholders then adjustments and changes were made by altering, adding or eliminating statements and questions within the risk model. In regards to auto insurance, the Risk Model is a better predictor of future claims verses the past 3 to 5 years of driving history (citations, tickets, claims). Simply put, people who have a high debt load (take risk with money) file more claims. The problem with this rating variable is the inclusion of 'Medical Bill(s) Debt'. Consumers should lobby their state legislators Non-Stop to exclude medical bill(s) debt because it does not fairly assess a person's risk tolerance to debt. Although the details of the Risk Models are 'secret'...proprietary information held by the Third Party Actuarial Firms... the models are 'primarily designed' to reveal debt-to-income ratios; credit card debt / risk tolerance; multiple loans and or high dollar loans on vehicles, boats and other toys.
The main reason for the 180-day claim window: Insurance Companies want to pay and close the claims to avoid future increases in the cost of materials and labor. This applies to both auto and fire claims.
2. Auto Insurance
A. Take a proactive movement to improve your three-digit credit score with the Credit Bureau Agencies (Experian, Equifax and TransUnion). Although this score is not directly tied to the Risk Model used by insurance companies, it is a very good indicator how an individual will score on the Third Party Risk Model used by their insurance company. An 850 score is a 'Perfect Score'. Strive for a consumer credit score above 750, 775 and even 800. All Risk Models are not equal. Risk Models are different between the banking and insurance worlds. Moreover, these risk models will vary between individual banks and individual insurance companies. In addition, the three-digit credit score for any individual can and does vary between the three Credit Bureau Agencies because each company has its own Risk Model.
B. Agree to use the insurance company phone app or device that measures driving habits to reduce your premiums. State Farm calls their program 'Drive Safe & Save'. State Farm advertises discounts range between 10% and 30%. However, up to a 50% discount is possible, but rarely applicable. Just know most State Farm Agents will never reveal up to a 50% discount is 'possible'...probably because it is mostly unrealistic. In addition, not all discounts may be available in all states or might vary between different states. The app or device measures habits, mainly speeding, hard braking, driving frequency, mileage, etc.
C. Move to Timbuktu......move to a remote and sparsely populated area! The last time I checked, Wyoming is the most sparsely populated state and Niobrara County is the least populated county in Wyoming. There are places in other states too. Check Out counties in Kansas, Nebraska, North Dakota, eastern Montana, central Nevada along U.S. Highway 50.....hey you'd be north of
@Optimus.
D. Nothing wrong with accepting a
used OEM part from a salvage yard. It is a better alternative than an aftermarket part. Besides, your damaged vehicle is 'used' and no longer new.
E. For the most part, RCV (or the general concept) is not used in the settlement of auto claims. ACV is applied at the time of loss. There have been exceptions, especially in the recent past when vehicle supply was scarce resulting in inflated values.
F. Uninsured / Underinsured Motorist (UM / UIM) Bodily Injury is definitely a "can of worms". No state can provide accurate numbers because the numbers / percentage of drivers without insurance are derived from citations written by law enforcement officers to drivers who cannot produce Evidence of Insurance on the scene. Many, if not most of these drivers actually have insurance and failed to place the Evidence of Insurance Cards in their vehicle at each renewal cycle. Some law enforcement departments now use outside third party sources to obtain proof of insurance. The State of Colorado requires insurance companies to submit lists of current insureds. The Department of Motor Vehicles then matches up their registration / license plates with the insurance list.
G. Liability Bodily Injury / Personal Injury Claims - Thanks to the lawyers, there are no adequate adjectives to describe this big mess. The abuse, fraud and dare I say outright theft here is astounding! In addition, the insurance companies do very little but raise rates.
Is auto insurance a scam? IMO, mostly legitimate and partly a scam. It is a highly regulated industry. The Auto Insurance Scam and Racket primarily consists of four 'actors' / 'players' - insurance companies; personal injury lawyers; criminals 'staging' auto crashes (insurance fraud); and chiropractors. I could discuss all four 'actors' at great length...and it all has a negative impact on rates. Staged Auto Crashes - very low risk and high reward. Fraud involves Misrepresentation which is difficult to impossible to prove. In the end, the insurance company executives and actuaries are only reactive...raise premiums and do nothing proactive.
3. Homeowners Insurance - the weather in recent years / decades has taken a toll on the cost of homeowners insurance with
forest fires and
hail being the main perils (causes of loss) for claims filed. Not much we can do about the weather.
However, insurance consumers can react proactively in other ways ------->
A. When I left the insurance industry, there were four (4) types of homeowner's policies. 1. Basic Form (HO-1); Broad Form (HO-2); Special Form (HO-3); and Comprehensive Form (HO-5). The HO-4 and HO-6 forms are for Renters and Condominium / Townhouse respectively. There might be and probably are additional policy types in the market now. The HO-3 Special Form and HO-5 Comprehensive Form both contain all of the "bells and whistles"...and therefore, are expensive. Although the HO-1 and HO-2 policies came on the scene in the 1950's, it might be a good time to revisit and consider these policy types. These are both no nonsense policy types that will provide protection form
large catastrophic losses if RCV is available on both Coverage A - Dwelling and Coverage C - Personal Property (Coverage B with some companies). Contact your agent and inquire about these policy types, but only consider if RCV
is available and can be added via endorsement.
B. Regardless of Policy Type...ask for quotes on $5,000, $10,000 or a higher deductible.
C. Purchase a smaller home.
D. Build a home underground with secret entrances and S
elf-Insure.
E.
@Openroad - a homeowner's policyholder can potentially extend the 180-day claim window for repairs. They must contact (in writing) their insurance company and provide a valid reason for the extension. However, the company is not obligated to grant an extension unless there are compelling circumstances. Valid reasons for extension --------->
- Unexpected delays in obtaining building permits or materials
- Severe weather conditions hindering repairs
- Contractor issues or disputes
- Unforeseen complications during the repair process
F.
Hire a Public Adjuster / Private Adjuster. A Public Adjuster or Private Adjuster is a professional insurance claims handler and claims adjuster who advocates for the insurance policyholder in appraising and negotiating a claimant's insurance claim. In Colorado, there were two LARGE CATASTROPHIC LOSSES caused by fire: 2012 - The Waldo Canyon Fire; and 2013 - The Black Forest Fire. I witnessed first-hand insurance companies not adhering to
The Principle of Indemnity. Insured's fought back by hiring their own Private Adjuster, especially after the 2013 event. Example, I heard of a claim in the original amount of $17,000.00 was later settled for $234,000.00. A good portion of this was the result of REPLACEMENT of certain types of Personal Property like furniture and clothing instead of by loss mitigation via property restoration.
It is my understanding loss restoration services do not completely remove the smoke, char, soot, etc. particles from clothing and furniture. Never accept this type of claim settlement from an insurance adjuster. ALWAYS DEMAND to be INDEMNIFIED and only ACCEPT Replacement Cost Value (RCV).
Finally, if a claim appears to be unfair (the adjuster not adhering to the Principle of Indemnity), contact your agent. If your agent ignores you or fails to step in and advocate on your behalf, then contact the Department or Division of Insurance in your state. If you want to make noise and roll some heads this is certainly a way to accomplish that goal.
included.
