By on December 18, 2006

fordzodiac602222.jpgAs much as I enjoy vigorous debate, I abhor pseudo-science. From The Bermuda Triangle to past life regression, I just can’t deal. If the subject matter in question is faith-based like, say, a talking salamander's role in the development of Mormonism, I’m good. But the moment an aspiring conversationalist tries to deploy scientific explanations for a fundamentally irrational belief system– aliens sucking up Air Force planes from the Gulf Of Mexico for anal experimentation or Joan of Arc reborn as a 42-year-old housewife in Hackensack, New Jersey– I’m out. So when I read that insurance quote provider Lee Romanov says your star sign affects your chances of having an automobile accident, I just had to ring her up. Yes, it's been that kind of day.

You can hear my righteous indignation on the podcast below. Truth be told, I've got no truck with Ms. Romanov’s basic assertion that automobile insurance industry rates seem capricious (even if she seems particularly oblivious the existence of actuarial tables). Certainly, one can understand the rational basis for mandatory car insurance: ensuring that drivers can pay for their mistakes. But in practice, the business is rife with greed, fraud, inequity and counterintuitive logic.

Here in Rhode Island, a state only slightly less corrupt than Botswana, insurance fraud is as common as people who drink their java with five sugars. I remember the first time I took a bent motor to a local auto body shop. The “repair specialist” took one look at the damage and asked “How ‘bout we claim $500 and I’ll kick you back a hundred?” Talk about a trick question. I don’t think the idea that his customers might put a higher value on the quality of the actual repairs than their ability to make a quick buck ever occurred to him. Or, for that matter, most of his customers. 

According to a recent study, one out of every three Americans thinks it’s OK to pad their insurance claims. In dollar terms, insurance fraud costs the industry $30b a year. While health care and personal property fraud account for the lion's share of this thievery, the automotive part of the program racks-up some $8b (not including actual automotive theft). For example, on Saturday, the owner of Louis and Sons Auto Body in West New York was convicted of defrauding insurance companies out of $10k. Like tens of thousands of body shops across the nation, Louis Rivadeneira inflated claims and charged insurers for parts he never bought.

If you’re thinking “…and never installed” you’d be dead right. (Perhaps literally.) All those Americans happy to top-up their insurance claims might want to think about Louis’ “de-contenting” (i.e. leaving out parts or substituting inferior parts) the next time they drop off their car for repair. Never mind; the man received a fine, a slap on the wrists and promised never, ever to do it again. So policy holders and auto body shops can continue to commit fraud on an epic scale without fear of hard time. Of course, the insurance companies themselves complete this unholy trinity.

For example, all the safety equipment for which the major automotive insurers have lobbied so hard have added extra cost (not to mention weight and complexity) to the average automobile, without which your premium may be raised, with which you may not be any safer (e.g. ABS braking). Of course, all the safety-related bells and whistles don't lower drivers’ premiums that much because the cost of fixing them raises the cost of repair, which the insurer must then pay, which gives the auto body shop another chance to commit fraud, which raises premiums. 

To be fair, the insurance industry’s major players shell out big bucks to try to crack down on fraud and protect their assets. Meanwhile, they stand by while the government gives driving licenses to people who can’t read a warning sign or, in fact, drive. And there are plenty of independent agencies– many with big name insurance company stickers on their doors– that are ready, willing and able to pocket premiums and not provide insurance (a growing scam for new and illegal immigrants) or sell policies by the month (just long enough for drivers to get their cars registered or their licenses renewed). Clearly, car insurance is a racket for many people on many levels.

In fact, the situation's so nuts that charging people premiums according to their astrological sign makes about as much sense as the current set-up. And while I believe that astrological readings are simply a combination of observation, guesswork, playing the law of averages and picking-up on psychological “tells,” I’m not against using the practice to get people to drive like responsible adults. “The moon is in Uranus– and so is your head if you talk on the cell while driving. And your son… Lenny? Liberace? Leo? Leo is getting retrogrades; don’t let him drive without an adult on any day with an ‘a’ in it.” Works for me.

[A free copy of Ms. Romanov's book "Car Carma" for the first person who can identify the astrological car referred to in the song with the lyrics "WELL SHE ISN'T!"]

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72 Comments on “Car Insurance Rates: Star Struck?...”


  • avatar
    joshuaconner

    That would be a Plymouth Satellite! Go B-52′s!

  • avatar
    Luther

    Joan of Arc reborn as a 42-year-old housewife in Hackensack, New Jersey

    Well… Ummm… That would explain Hackensack…..

  • avatar

    We have a winner! It was indeed a Plymouth Satellite from the B52's song Planet Claire.

  • avatar

    I think it is a Ford Zodiac. An overseas product in the 50s and 60s.

    –chuck

  • avatar
    dolo54

    love that song!

  • avatar
    Alex Rashev

    I’m really surprised that all insurers offer a cap on damage they cover. What if you hit an Enzo, and ram it into an intersection where 10 other cars hit it? I always thought the purpose of insurance was to protect you from large expenditures, not small ones.

    And, I’m all for having liability deductibles, perhaps even pre-charged refundable ones. For example, you start an auto policy, you put down your $500 deductible, and if you hit somebody, the deductible is cut out of those $500 and you have to “refill” it within a certain time frame to keep your policy. If, on the other hand, you don’t hit anybody, you’re in good shape – your money is refunded when your policy ends.

    In other words, I have no idea why there is a deductible going one way and not the other. Would have cut down on those small frauds, too – you’d care a lot more if all of a sudden $400 of your own money would go to fix that guy’s scratched bumper.

  • avatar
    Jonny Lieberman

    “You know Astrology is complete horseshit, right?”

    Thank you, Robert.

  • avatar
    Terry Parkhurst

    The insurance companies say they work off actuarial tables and data. It’s the kind of stuff wherein which they make you pay more for a Volkswagen R32 than a Chevrolet Cobalt four door sedan. But there are oftentimes, other more ridiculous – to my mind – factors.
    Case in point: 16 years ago, when I moved to the San Juan islands, to work for a short time as a reporter on a weekly paper up there, I changed auto insurance companies. When I filled out the paperwork, with a new agent in the tiny town of Friday Harbor, at one point, I was asked if I smoked. I admitted I smoked cigars, always outside and perhaps about four a year. The agent looked at me and replied, “So, you’re a smoker” and scribbled something down. He admitted I would pay more. When I took issue and asked why, he replied, “You’re a risk taker.” Being a “risk taker” with an auto insurance company requires a lot less than most institutions. In the past year, I smoked a cigar, right after Thanksgiving dinner, at some friends; it’s not something I would ever mention to the company now currently insuring my car.

  • avatar
    willjames2000

    Terry,

    Your secret is safe with us. And your insurance agent doesn’t read TTAC……probably.

  • avatar
    quasimondo

    I still think back fondly when I tried to get insurance on a 1991 Honda CRX. After I gave her my driving record (no accidents, 1 speeding ticket), and where I park the car at night (Brooklyn) and so on, she gave me back a quote for $6000 for a six month policy.

    “But this is three times what I paid for the car, ” I told her.

    “Yes, but we have to factor in your driving record and the high theft rate for this car,” she replied.

    “So does this mean that if my car were to get stolen, I’d get a check from your company for $6,000?”

    “No.”

    “Well, thank you for your time,” I said, and promptly hung up.

    I know that’s not how the insurance companies is supposed to work, but I find it absurd to pay more for insurance than you pay for your car, given the fact that you’ll get much less in an insurance payout than you pay in your premium, and if you have a low value car like I did, that they’d total out the car for anything beyond a bumper banger. It’s all a shameless bureaucratic scam, I tell you.

  • avatar
    Paul Niedermeyer

    Insurance scam #43: Comprehensive and Collision coverage for your vehicle (not liability) should go down each year as your vehicle depreciates. If anything, the rates go up. I drop this coverage after about 5 or 6 years; self insurance is cheaper for an older car.

  • avatar

    From The Bermuda Triangle to past life regression, I just can’t deal. If the subject matter in question is faith-based like, say, a talking salamander’s role in the development of Mormonism, I’m good. But the moment an aspiring conversationalist tries to deploy scientific explanations for a fundamentally irrational belief system– aliens sucking up Air Force planes from the Gulf Of Mexico for anal experimentation or Joan of Arc reborn as a 42-year-old housewife in Hackensack, New Jersey– I’m out.

    That talking salamander who was involved in Mormonism was actually an earlier reincarnation of Joan of Arc, before the Hackensack housewife.

  • avatar
    buzzliteyear

    It would be interesting if Ms. Romanov would make her data available to other statisticians to see if they can confirm her result.

    Often, the desire to believe blinds people to subtle but important mistakes in statistical methods. One dramatic case of this involved a study about whether praying affects medical outcomes:

    http://www.pobronson.com/A_Prayer_Before_Dying.htm

    BTW, I’m a Libra (one of the more ‘dangerous’ signs according to Ms. Romanov) and my last at-fault accident was in 1993 when I backed into my neighbor’s car, causing $250 in damage. I paid for her repairs out-of-pocket.

  • avatar

    I know that’s not how the insurance companies is supposed to work, but I find it absurd to pay more for insurance than you pay for your car, given the fact that you’ll get much less in an insurance payout than you pay in your premium, and if you have a low value car like I did, that they’d total out the car for anything beyond a bumper banger. It’s all a shameless bureaucratic scam, I tell you.

    I paid $450 for my old ’77 Corolla, in 1985. I paid about $800-900 a year for insurance in DC. But a lot of that was probably for liability. Still, 6k a year for a 2k car seems nutty.

  • avatar
    ash78

    The thing that irks me is that my rates don’t go down over time. I always thought they were supposed to, at least as a reward for long-term safe driving. I’ve confronted several agents with this question, and I generally get the answer “Most claims are partials, not totals. Parts and repairs on your car don’t really come down in price, even though the car itself goes down in value”

    The best thing I’ve found is to get as many discounts as you can: homeowner/multiple policy, no accidents, safe driver, and driving fewer than 7,500 miles a year (I usually rent for long road trips).

  • avatar
    TheChaz

    “Meanwhile, they stand by while the government gives driving licenses to people who can’t speak English.”

    Just curious why you think that not speaking English makes one fundamentally more dangerous behind the wheel. If you’re going to say that it’s about needing to be able to read streetsigns, I’d point out that we also give licenses to the functionally illiterate. Not to mention that we allow drivers licensed in foreign countries to drive here while visiting, and are likewise allowed to drive in other nations. If one can read well enough to pass a driver’s license test, I say, drive on.

  • avatar
    Hippo

    The fact that they give driver licenses to people based on their ability to walk and chew gum at the same time is bad enough, but allowing people without financial responsability (wether insurance, self insurance or other means to compensate a victim) behind the wheel is beyond criminal.
    IMO wether spanish speaking or not, people driving without insurance should be criminally prosecuted and their cars confiscated and crushed.

    Other then that one of the biggest problems is rates based on ZIP codes.
    The lack of ethics wether by insurance companies , shop owners or drivers seems to be a reflection of todays society in general.

  • avatar

    When I bemoaned the insurance industry's lack of concern for legal driving standards, I was not immigrant bashing per se. My parents and my wife are U.S. immigrants. I've amended the text to indicate the true cause of my ire: drivers who can't read a warning sign or drive.

  • avatar
    Wolven

    I think the “can’t speak English” point was, they aren’t LEGAL residents of the U.S., nor do they have a VISA or some other visitation permit. But then I could be wrong…

    One point that should be made about the Insurance industry is exactly HOW they make their profits (their OBSCENE profits). Since they are required by law to pay out somewhere over 90% of what they recieve in premiums, MOST of their profit is made from the interest they get by “investing” the HUGE pool of money they have at any given time.

    Now if you think about that for a bit, a number of things will begin to make sense. Such as: their push for more expensive “safety” features that don’t actually do anything to increase safety. Laws that require everyone to insure everyone ELSE rather than a “No Fault” system where each person is free to choose whether they wish to insure themselves or not. Why they don’t work harder at eliminating fraud. Why medical costs keep rising while quality keeps dropping. And so forth and so on.

    The point is, the more they “have” to pay out, the higher the premiums they can charge, and consequently, the bigger the pool of money they have at any given time, and therefore, the greater their profits will be And THAT, is all the insurance companies and their paid for politicians really care about.

  • avatar
    Jonny Lieberman

    I owned a 2001 WRX Wagon. My insurance was X-amount.

    I bought a 2006 WRX Wagon — the same car — and my insurance went up $50 (or so) a month.

    Why?

    “Your car is a turbo.”

    “My last car was a turbo — I actually bought the same car.”

    “No sir, the WRX only became a turbo in 2003.”

    “No, really, it’s the same car except it has a little bit more power and better brakes.”

    “Correct sir, because it is a turbo.”

    “Let’s say you replaced your current car with the same car and your rates went up by 33%, how would you feel?”

    “While I agree it does not seem fair sir, I assure you that you didn’t buy the same car. Call the dealer.”

    “Drown.”

  • avatar
    Ryan

    The insurance business in general is horseshit. If they can get away with charging people more for any factor, they will.

    Case in point, I have a less than perfect record (an at-fault accident and a couple of minor tickets), and as such, I pay $5500 per year, for a truck that’s probably worth $1500 (the only reason I drive a truck is because everything else is more expensive to insure – go figure). If I woke up tommorow as a woman, my rates would drop to half of that, basically the same rates that I’d pay if I had a perfect record. Now, I understand that I should be required to pay more, that much makes sense. But I refuse to believe that I’m twice the risk of someone who’s done everything the same as I have, except developing a y-chromosome.

  • avatar
    PandaBear

    About driving less than 7500miles a year. I have been thinking about rolling back my odo just to get that. See, I am not really planning to sell my car (190k miles already) and have liability only insurance. Almost at a point where insurance is costing more than my car.

    The last accident I have I settle out of my own pocket, for $100 (scratched bumper). I would have easily spend $500+ extra for insurance per year for 3 years.

  • avatar
    aarons12

    actually, there is at least one insurance agent who reads this column, and actually he is a proud Independent Insurance Agent whose family has been in this office since around 1927. So although i unfortunately realize that there is some truth to what is said at the top about some ‘brokerage’ offices, there are a whole lot of high quality people in the insurance agency business who should not be painted with the same brush.

    as for the other comments, many are quite correct, and many are total misconceptions (that a $100 payout would raise ones rates $500 for 3 years, for example) that are just out there because insurance is not easy to understand and most people have no interest.

    all they know is that insurance costs a fortune, and that part of the game is getting something for the money you spent, regardless of whether you had a real claim or not. what a system.

  • avatar
    Adamatari

    Farago:

    What’s science? I don’t seem to remember statistics being a science. A tool of science, yes, but not science itself. I don’t call insurance companies methods scientific, statistical maybe but not scientific in any sense. If it’s actually true that birth date (that’s all astrology is really about in a way) is a better predictor of accident rate than other things they use (just look at the above posts for stupid examples) then it would make more sense to use it as a factor in rates, wouldn’t it?

    I find it kind of odd that you are willing to take higher rates based on some BS “scientific” explanation regardless of whether ir actually correlates with accident rate.

    As for insurance, the issues run deeper than anyone can fathom it seems to me… Certainly rates are not truly in line with actual likelihood of getting in an accident. Fraud adds cost but other factors do as well. It seems to me that all the various forms of insurance have some sort of issue with them, making me think the insurance industry itself is messed up in some way.

  • avatar
    aarons12

    actually, there are some innovative ways to price insurance being looked at right now that may save a lot of money for certain groups of people (those that truly drive very little, for example). but what you leave out of the analysis is that although there is definitely an ‘insurance establishment’, the industry is also HUGELY competitive.

    insurance companies are constantly looking for new ways they can stratify the market legitimately (i.e. they still have to be able to demonstrate SOME relevance to a variable that can be analyzed and predicted, otherwise regulators would not let them use it)

    some more creative ways coming down the pike may include leasing with insurance (really with insurance, not shoved down your throat by a car salesman looking to pick up an illegal insurance kickback) and ‘black boxes’ people will be able to voluntarily install to lower their rates.

    meanwhile, as was pointed out, insurance companies make a very small percentage profit on huge dollars. so they have to be conservative because mis-steps can affect profitability for years.

    and all this talk has STILL not touched on the subject of catastrophe losses, such as katrina and the 9-11 losses, which the industry has also been expected to absorb. what’s the right dollar amount for an insurance company to put away for such things? losses in the WTC approached $75 billion, but if a hurricane the size of katrina struck the NY metropolitan area, it’s estimated that the amount of business and residential property at risk is over $3 TRILLION!

    yes the industry has problems, as do all industries, otherwise TTAC would have nothing to write about most of the time. but on the whole, i don’t think they are any worse than others, and better than many.

  • avatar
    i6

    $6000/year insurance for a $2000 CRX. That means they expect the car to be stolen or damaged beyond recovery as much as 3 times a year.

    Brooklyn you say? Yep, seems fair.

  • avatar
    bummer

    So although i unfortunately realize that there is some truth to what is said at the top about some ‘brokerage’ offices, there are a whole lot of high quality people in the insurance agency business who should not be painted with the same brush.
    ————–
    Why not? After talking to 50-100 agents in the last 10 years, they seem to be alike ..

    Also, if you worry about the hurricanes, maybe you should not be in the insurance business at all. just 2 cnts

  • avatar
    NoneMoreBlack

    Without the data being available this is almost impossible to accurately debate. However, I can assure you that if you look at the actual statistical significance of those conclusions, it will be marginal if not entirely insignificant.

    I cannot stress how easy it is to slap a simple linear model on a big data set and show all kinds of “surprising” coefficients, not a single one of which will be meaningful. It’s difficult to exlain how this works without explaining analysis of variance. Basically, the random walk principle means that any random junk data can contribute towards explaining the variance of data, whether or not it is actually useful as an explanation (and in fact, it is extremely unlikely that no matter how unrelated the data are, the correlation will be exactly 0). Analysis of variance is used to seperate junk explanatory vectors from real explanatory vectors.

    I had a statistics professor demonstrate a hilariously similar statistical sham. He created a data set of names, ages, and marriage data, and included astrological sign. A linear regression showed (gasp) that astrological sign is more significant than similarity in ages. Except the data for astrological signs were invented and totally random. Oops. This was easily demonstrated with an analysis of variance of the data.

  • avatar

    Adamatari: Farago:
    What’s science? I don’t seem to remember statistics being a science. A tool of science, yes, but not science itself.

    They are a very powerful tool of science when used correctly. Drugs are fairly effective because statistics are used to analyze clinical trials. I suspect that if Ms. Romanov, the Car Carma lady, used statistics at all, she used them incorrectly. Reminds me of when Carl Jung tried to prove synchronicity. When the statisticians showed it didn’t work, he fired them.

    If astrology worked, singles would go to astrologically based sites instead of websites like match.com. Astrology, on the other hand, is totally useless for making predictions. Otherwise, people would use it on websites like match.com to find romantic partners, to pick stocks, etc.

  • avatar
    PandaBear

    aarons12, $100 of payout (by the drivers without involving insurance claim) worth of scratched paints will cost $600 in the body shop just to paint the bumper, then factor in the potential impact on driving record, and the insurance company’s overhead (they need operators, insurance sales, and claim adjusters right?) the whole can can easily cost them $1200, so adding that to the ROI and you can easily get $1500 over 3 years.

    There was once a corp car of a non-profit group rear ended me, the bumper is scarred and a piece of foam inside is compressed. They pay out $1100 cash and I fixed it myself. Cost me $160 for a painted bumper on ebay and self installation.

    It is usually more efficient for the whole society to have every one take their own risk (that they can afford) than layer risks to each other with overhead.

  • avatar
    HEATHROI

    Ambrose Bierce suggested this about insurance in the late 19th Century.

    http://www.authorama.com/the-devils-dictionary-10.html

    (scroll to insurance & agents)

  • avatar
    reid_houston

    Your article reminds me of the extended warranties offered by retail stores nowadays everytime you buy electronics. They usually overlap the manufacturer’s warranty which is plain silly. And even worst, the warrantys’ usually amount to about 10-20 percent of the cost of the object, yet there is probably a one percent chance something will happen during the warranty period that will cause the company to pay. Insurance companys are just as devious as these warranty companys.

    While your article shows a vicious cycle. It sounds like you are arguing on the insurance companys’ behalf. I have no sympathy for all the fat cats in these companys since they have enough lobbiest in DC looking out for them to make anyone sick.

    Even without fraud (if that were ever possible) premiums would still be ridiculous for anyone who isnt a perfect driver or at least the ones who have been caught not being perfect.

    ALL Insurance companys’ have one motto. Get as much out of the customer as possible and pay out as little as possible.

    Car, House, and to some extent health insurance is all the same…

    You should write an article about overpaid CEO’s and there close friends in the company. That is where all the money goes.

  • avatar

    To everyone quoting the guy about the $6000, it was a HALF year, i.e. Six MONTHS. So they expect the car stolen every other month, and have to pay out 2000$ 6 times a year, oh wait, how much was his deductible to be? 0$, 500$, or 1000$?

    I was amazed at my insurance since I fully turned 25 (part of the last 6 months I was 24, then the new billing came, $296 for six months insurance ON TWO VEHICLES!!! (not full coverage, liability only) I’m a home owner with a clean record now, multi-vehicle discount, and I’m about to call them and ask for a discount for the under 7,500 miles driven a year, as I live precisely 1.5 miles from where I work. Yay!

  • avatar
    Robert Schwartz

    Johnny: Of course your rates went up when you baought a new car. The risk increased by the difference in value between the new car and the old car. The agent may not have done a good job explaining it to you, but that is what happened.

  • avatar
    qfrog

    What then explains this?

    http://video.google.com/videoplay?docid=-1203730021721681764&q=Stolen+Tank

  • avatar

    Ms Romanov gets pretty good media coverage in the GTA and her articles/releases often end up in the Toronto Star and the Globe.

    If we take astrology out of the question what if the study had been based on month of birth? Any excuse for a rate increase right? ;-)

    RF – You missed the best part of Ms Romanov’s site.. the shirts/mugs section..
    /”Pissing off the whole planet one person at a time”
    //”If the shoe fits, buy the outfit to match” etc..

    ouch :-P

  • avatar
    Adamatari

    Holzman:

    Don’t get me wrong, astrology is crap. But is there really a significant difference between something that stupid and someone getting charged thousands different depending on the company, or whether they live a block down? Or for smoking a cigar once a month? That’s crap too. Also, your drug metaphor also has a hole – drug companies often use statistics to make it seem that drugs have more positive effect than they actually do:

    http://www.slate.com/id/2150354/

    Perhaps you just trust people in drug and insurance companies more than me…

    NoneMoreBlack:

    It seems you actually know what you’re doing. Do you think the insurance companies charge rates that make sense most of the time?

    I wonder what whether just dumping all the questions and charging a flat rate would come out to something less for most people. Where is the money going?

  • avatar
    allen5h

    Insurance is a great mystery to me. I can never understand it. I mean I understand it conceptually, I just do not understand why insurance companies do the things they do.

    For example, why would an auto insurance firm spend hundreds of millions in advertising, but will then take extraordinary measures to cheat you out of a lousy $300 to fix your rear bumper when you are rear ended while stopped at a red light? (This actually happened to me. Google keywords ” lying claims adjustment process “.)

    And what is it with this business about your credit scores? Now the local broker agent and the insurance company have the additional liability of safeguarding non-customer’s SS numbers. Are these insurance companies selling these SS numbers to data profilers, and if so, is the risk of all of this data handling exposing people to ever greater identity theft and credit history errors?

    Would it be a better system if they could look at people’s investment portfolio and determine that the folks with long term buy and hold dividend paying stocks with low ‘folio betas are risk adverse and therefore worthy for a lower rate? No wait, that would be too much like Big Brother getting his ugly nose into everybody’s business.

    So why is the business with the credit scores any better?

    And then there are the really big insurance outfits that can not do with anything less than about fifty vice presidents. That is an aweful lot of executive compensation that we all have to pay for.

    I just don’t get the insurance thing.

  • avatar
    stuki

    Comp/collision (ie voluntary) type insurance would be priced ‘reasonably’ if insurance carriers were allowed to discriminate sufficiently between drivers with different risk profiles ( which they aren’t ), and there were enough of them competing (which there seem to be).
    ‘Fixing’ liability, would in addition require abandoning the obsession with assigning ‘blame’ for every little hap and mishap to one party, by a process rigged by ambulance chasers to extract the greatest possible share of the take for themselves. A ‘no fault unless criminal conviction’ default would do the trick. Why this would be such a difficult sell for a suitably populist politician is beyond me.

  • avatar
    PandaBear

    A ‘no fault unless criminal conviction’ default would do the trick.

    That’s because people on average believe that they are more likely to be better than the others, that they will not be the at fault party, that this policy is unfair for them.

    Althought it is still statistically average for everyone.

  • avatar
    ash78

    I love that it’s still okay to place heavy (and statistically sound, but factually unfounded) penalties against certain drivers, say male teenagers, just because of the actions of some of the group. I made it all the way through my teen years in the ’90s without a single accident or ticket of any kind. Of course, having a 115hp FWD car keeps the hoonage to a minimum.

    But what if the stats supported that black people or Jews just HAPPENED to have higher accident rates or median claim size? Can you even imagine the backlash when their rates went up? I guess I see insurance as the last form of open, institutionally-supported discrimination and it makes me ill.

    So my beef is that actuarial calculations may be based on statistics, but the computing power is there now to identify the individuals’ behaviors and change their rate structure according to their real-life performance, rather than the performance of hundreds of thousands of others in their same age/gender profile. Can you imagine if you were reviewed at work based on what other people in your supposed peer group were doing? I know I can’t wait to reduce my coverage to liability when my car gets a little older. I will never forget how bad the premiums were for me over 9-10 years, and with zero real data to justify it.

  • avatar

    lies, damn lies, and statistics.

  • avatar
    Gardiner Westbound

    Insurance fraud is an insurance company refusing compensation after collecting premiums for decades. They’re champs at the racket.

    I paid premiums for 30-years for an all-perils house insurance policy. All perils seems pretty inclusive. I never had a claim until a freak early snow storm hit splitting two trees on our lot. The insurance adjuster immediately produced a 32-page booklet of exclusions from our all-perils policy. Guess what? Trees that break in a freak snow storm are excluded! Funny thing, we had never seen the booklet before nor had our insurance broker gotten around to mentioning it.

    This may account for insurance companies owning most of the over 30-story office buildings in the country. It’s a completely risk-free business.

    The way I see it now, anything I can get out of an insurance company is rightfully mine in the first place. What’s the name and address of that Rhode Island collision shop that kicks back part of the repair bill?

  • avatar
    murphysamber

    Robert,

    Have you ever met some of the people studying to be actuarials at Bryant? Biggest bunch of drunken goons and whores i’ve ever had the pleasure of going to school with. If those same people from ten years ago are the one’s writing the tables now, that would explain a lot about why I pay so much for insurance. Talk about risk takers…..

  • avatar
    ash78

    If fraud is such an issue, how about letting homeowners and drivers build equity in the policies over time, a la life insurance? When you are accumulating an asset, it should reduce the chance that you would blow it all on a small or frivilous claim. I’ve always wondered why life insurance seems to be the only type of policy with a cash surrender value…

    You want incentives for reduced claims and fraud, give people equity! I’m sure there’s a good reason for the status quo, but I’ve never heard it.

  • avatar
    jdv

    “Other then that one of the biggest problems is rates based on ZIP codes.”

    Why? I live in a little midwestern town where I am much less likely to have an insurance claim than someone in a large urban area. Why should I subsidize your higher losses because you choose to live somewhere else?

    And for the conspiracy theorists that think all insurance companies are out to screw them, have you forgot basic capitalism? Wouldn’t a “Southwest Airlines” equivalent rise up and become an industry leader based on magically lower rates and dramatically better service?

    Insurance companies are for the most part doing the best they can for their customer, and trying to be competitive on price for the costs they will incur. That’s not to say their aren’t scumbags in the industry, just like there are in any walk of life, but to slight the industry as a whole is just naive.

  • avatar
    Glenn A.

    A pal of mine had insurance on his garage with a certain large insurance company and when he put in a claim for a new roof which he felt was necessary because snow load had weakened his roof and he was afraid it would collapse on tens of thousands of dollars worth of tools, the company declined to put a new roof on and said, essentially, buzz off.

    So he insured with a reputable company, put in the same claim with them a few months later and they paid, no questions asked.

    Now the question is – why should the one company arbitrarily decide – nope, not gonna pay – and then another set of insureds, essentially, help him pay for his roof because the different company said – yes, valid point, we’ll put on a new roof?

    Not all insurance is a total racket. You just have to watch what you are doing (yes, what a novel idea – educating ones self and taking responsibility for your actions by using due dilligence with a business relationship with others), and actually read the fine print and if in doubt, ask questions. No REPUTABLE agent is going to lie to you. Their insurance licence is more valuable to reputable agents, than gaining some short-term money (and potentially losing a customer when you find out they lied).

    I decided to try to get a better quote on my home and car and called a local agent, who lied to me. In the end, I said I would be staying with my current company, who have treated me well. It was a huge hassle to undo even a quote process because this unreputable agent had sent off as if I’d signed the application and she started the policy. I kept getting dunned for money from the insurance company when in fact, I’d never had a policy. Finally, after a LOT of aggro, I got it sorted out.

    Then my current insurance company just reduced my monthly auto insurance from $273 to $210, for which I am grateful but I have no idea why they did it. Perhaps because I turn 50 next year. Who knows.

    Another thing to consider. There are two types of insurance companies. Mutual and non-mutual. Just like there are banks, and there are credit unions. In a Mutual insurance company, YOU the policy holder are the “stock-holder” and thus, if you chose a good Mutual company, you actually will get a dividend check in the mail, part of the profits of the company. Just as credit unions are owned by the depositors, instead of by corporate Giantist-Greedius-Amerik-anus.

    For car insurance, there is the state-required mandatory liability (in my state, the minimum is very low – $20,000 per person and $40,000 per accident). This is to protect others for your actions, not your property. There is also legally required personal injury protection here, which encompasses medical cover (virtually unlimited in Michigan in catastrophic accidents, the only state thus so).

    Now, IF everyone in any given state paid about 25 cents extra per gallon on motor fuel, statistically speaking this would provide a basic liability and medical cover for everyone, including those who pretend to buy insurance (say for 1 month) then go get tags from the DMV, and stop paying. So, instead of paying God-only knows how much for the basic insurance, we all would pay every time we fill up, and it would be a lot less noticeable.

    Those smart enough to realize that the minimum insurance liability levels do not protect them adequately (nobody wants to lose their home in a lawsuit because they sneezed, twitched the wheel and ran over a Boy Scout) would be free to buy extra liability, obviously on top of the legally required amount, plus anyone with a car loan would be required to buy collision and comprehensive, just as now.

    The money collected by the state would go into a fund to pay for the legally required liability for drivers of any licensed and properly tagged vehicles on the road, and medical for anyone injured in or as a result of an auto accident. (Michigan has such a system for over $1 million on medical bills, it is called the Michigan Catastrophic Claim Association). It’s not brain surgery, it’d do-able.

    In reality, overall insurance rates could and would come down because a) those now not paying a penny (including illegal aliens) would be forced to pay towards insurance sine they can’t run their cars on air and b) we’d be paying a set amount towards insurance depending upon the fuel amount used (i.e. larger vehicles which can cause more mayhem in an accident would be charged more because generally speaking, they use more fuel; the more miles on the road, the more the risk – but this is even because the more miles on the road, the more fuel is used).

    And no, it wouldn’t ever happen except by grass-roots insistance by the general public. Same as a fair taxation system (known as flat tax).

    Even God didn’t say “the rich people get to give 40% and the poor 1%”. He said 10% tithe for all.

  • avatar
    TreyV

    Johnny L: The WRX wasn’t available as a USDM model until the 2002 model year. Did you mean you bought your 2002 m.y. car in 2001?

  • avatar
    jdv

    (My pet peeve is ignorant people bitching about some insurance conspiracy…. forgive my ranting)

    And for those that bemoan their high insurance rates, then consider how every time someone gets a huge jury award “to send a message”, that cost is then past on to the rest of us. We bitch about higher rates, but we also cheer when those scumbag insurance companies with billions in the bank (for such a contingency) have to pay out to someone with a sorry story. I’m in favor of people being compensated for a loss, but we as a society have to realize that it isn’t “them” paying the bill, but the rest of “us”.

    Everytime someone pads their insurance bill, the rest of our bills just went up.

    There is no vast conspiracy to screw you via insurance companies, else one smart operator would come along with a business model of making a reasonable but not excessive profit, and wouldsome ass on the industry.

    But then it turns out those costs (huge jury awards and stupid regulatory costs) the industry has been bearing warrants high rates and our honest white knight insurance company never comes along…..

  • avatar
    jdv

    I should give a disclaimer that I work for a mutual insurance company (as a computer nerd). There are no stockholders. When the company does well the money either goes into the “reserve” (money set aside for damages), or it goes back to the policy holders via dividends and lowered rates.

    Nobody is getting rich here, though the CEO has a nice house and a sweet mercedes.

  • avatar

    There is no vast conspiracy to screw you via insurance companies,

    So the companies all do it independantly?

    I thought I was in one company’s good hands. I paid premiums for years and never asked anything from them. Then I had an accident – I was rear ended by a drunk uninsured motorist on a rainy night. I filed a claim. They paid the very minimum they could to get the car fixed and then they dropped me. Yeah… you’re in good hands with them as long as their good hands are in your wallet. If you try to get your hands into their wallet they tell you to go away.

    Thankfully I found a company that deals with you honestly and knows what customer service is all about.

  • avatar
    jdv

    “Thankfully I found a company that deals with you honestly and knows what customer service is all about. ”

    That’s my point, it’s not the industry as a whole. Or an honest one would eventually come in and conquer them all.

    My wife seems to think that every auto mechanic in the world is out to rip her off. She thinks it is a conspiracy, or part of their training. And I tell her the same thing I am preaching now in this thread. “There is no vast conspiracy. There are good guys and bad guys just like anything else. Find a good guy, and stick with them.”

  • avatar
    Justin Berkowitz

    JDV: I’m not at all trying to be a dick here, but do you know what the insurance underwriting cycle is and how it works? Big jury awards are not the reason auto insurance premiums increase. For empirical evidence of this in the med-mal sector, I suggest UConn Law Professor Thomas Baker’s book “The Medical Malpractice Myth.” His argument about why jury awards do not have an impact on premiums ports over to the auto insurance world, too.

    Glenn A:
    I agree with a lot of what you say, and much of it makes good theory, but a few things to mention:

    1. A 25 cent tax probably wouldn’t cover all the things auto insurance currently covers.
    2. That’s sort of a regressive way to go about things, and if nothing else it doesn’t let people choose how much coverage they want.
    3. You lose the benefits of coinsurance that we have now. If I report an accident, my rates go up. That’s an incentive for me NOT to get into accidents, because I’ll pay for it (maybe more) through insurance premiums. This maximizes the moral hazard inherent in all insurance, because I don’t see consequences for my recklessness.
    4. If it would be cheaper to just pay out of pocket than report something, we have a self-insurance, a form of deductible where I can choose to pay out of pocket. Again, this is not the case when premiums are flat based on a gas tax, not tied to my driving record.

    A few comments about things people have brought up:
    –Why not have prepaid deductibles?
    You could, but why not just put your deductible in a savings account and you can keep the interest it bears instead of letting the insurance company turn a profit on holding your money?

    –Why should my insurance cost more than my car is worth?
    Because your insurance is not just first party (paying you) it is also third party (paying the guy whose Benz you just hit)

    –It is bs that the policy has a cap. What if I hit an Enzo? They will take my house
    Policies have caps so you can afford to have a policy at all. Insurance companies are all about predicting future payouts and costs. The fact that your policy has a limit allows them to calculate their future costs, know what they can invest and earn interest on, and most of all, how much to charge you per month. Policies with higher limits cost more money. If you want no cap on your policy, you will pay so much more per month you might as well just self insure by sticking your money in a high-yield savings account and keeping the 5% a month you’ll earn on it.

    They base rates on Zip codes? What bs
    It’s a good thing. It’s called community rating. Not only is it a reasonable predictor of chances of accidents, your car getting stolen, etc, but it allows high risk people to get insurance at all. It is a counterbalance to a bad driving record. If all the factors insurance companies used to evaluate me were personalized (i.e. I’m a shit driver), insurance would be too expensive for me to afford and I’d have to go bare or have the legal minimum. Making more insurance available to more people is a good thing.

  • avatar
    Glenn A.

    Hi Justin.

    My idea about gas prices going up 25cents per gallon to cover basic liability and (BASIC) minimum medical costs should be a viable solution because part of the program would be to actually educate people that this does NOT replace car insurance, it only covers the legally mandated basics.

    Once educated, anyone with brains enough to realize they need to keep more than minimum would go pay for the upgraded insurance at their agents/brokers office or go online and buy it, just as now.

    Plus as I mentioned, any time you lease or buy a car with a loan, you would be required to have comprehensive and collision insurance, and usually with a leased car, at least $300,000 liability.

    If you own a home, it is wise to have at least $300,000 liability on your car insurance, and obviously, on your home insurance too. This is a level above any legal requriements in any of our states to my knowledge.

    My wife is a nurse. We buy profession liability insurance for her despite the fact that her employer is supposed to take care of that. It’s called being prudent, in today’s world.

    I have insurance on my home, and my cars. It’s not entirely altruistic (for the needs of others), it is also to protect me and my wife from losing my possessions if I’m sued or my wife is sued, whether the suit is justifiable in God’s eyes or not (i.e. the REAL true, truth of the situation), if the jury and judge say I’m in the wrong – I pay. As in, if I don’t have adequate insurance, I may as well kiss my home, my retirement, my standard of living “good-bye”.

    I’d rather pay a few hundred a month for peace of mind. I don’t mind paying $70 a month for HDTV cable (only 8 HDTV channels, no less) despite only watching 3-4 hours of TV a week, so why would I quibble about the money used for protecting myself?

    BUT that said, once again, use due dilligence when buying. Consider a Mutual insurance policy for home and auto. Look at the mutual company to see if they will do a discount if you write both auto and home with them.

    Two companies which are very highly rated year in and year old at Consumer Reports are USAA (for military vets and active duty military) and Amica Mutual. I’m with the latter, despite being a vet, because I want to be with a mutual company. I’m awaiting my automobile dividend check which will arrive any time now, in fact, and in the summer, my home insurance dividend check will arrive.

    I work for a collector car insurance company (NOT connected with either USAA nor with Amica Mutual) and our company is much like Amica – good customer service, highly rated claims service, we bend over backwards and do more than required more often then not. But the collector car insurance industry is tiny compared to the regular car insurance industry, and it is more highly focused. I won’t plug my employer because I do not think this is the place to do so, however, if Robert wishes this information to be known for the benefit of any collector car insurers out there, I will divulge the information here.

  • avatar
    Glenn A.

    Let me put it another way.

    Currently, you might spend $100 a week on car insurance, ok? You might have a nice ride with a lein on it and want to cover it properly.

    If my “idea” of gas price increases to cover the basic legally reqired insurance were to come to play, you might pay 25 cents extra a gallon for that, but then the more-than-minimum coverage might cost $90 a week.

    I drove 20,000 miles a year, more than average. One of our cars gets a fairly average 25 mpg. That’s 15.4 gallons a week, and at an extra 25 cents a gallon, that would mean an extra $3.85 per week.

    Add $90 and $3.85 per week and I have $93.85 a week instead of $100 a week, for this example. The savings comes by the fact that the uninsured motorists which used to get away with not paying a frickin’ penny (and for whom most of us paid uninsured motorists on our OWN policy, to cover) now have to pay something every time they fill up.

    Make sense? By all means, put in your idea if you think mine is “bad”.

  • avatar

    Adamatari:
    Don’t get me wrong, astrology is crap. But is there really a significant difference between something that stupid and someone getting charged thousands different depending on the company, or whether they live a block down? Or for smoking a cigar once a month? That’s crap too. Also, your drug metaphor also has a hole – drug companies often use statistics to make it seem that drugs have more positive effect than they actually do:

    Point well taken about the ins cos. As for drugs, I was just saying that without the statistics most of the drugs would be ineffective.

  • avatar
    jdv

    Yes I know what the insurance underwriting cycle is. I don’t doubt there have been some scumbags in insurance, but it is incredibly naive and cynical to think the whole industry is a big scam.

    As I said, I work for a mutual company, over a billion in annual premium. Our goal is to cover costs. Our customers and our employees are our stakeholders. We have no stockholders demanding big profits. Our biggest insureds are the ones that come to the annual meeting and elect the board. We are driven by our customers – literally.

    So any money made beyond actuarial expectations goes back to the insureds as a dividend or rate decrease.

    But a funny thing, our rates are about the same as the stock companies. Either they are more efficient than we are, or they are priced somewhat fairly as well. I’m sure there are some scumbags, but you’d think that IF the industry as a whole was gouging, then their rates would be much higher than ours. But that’s not the reality.

    It’s just fun to hate on the big evil billion dollar corporations, because they must be evil. It’s ok, it’s just human nature. ;-)

  • avatar
    Justin Berkowitz

    JDV – I definitely agree with you, and i didn’t mean to suggest that I think the entire insurance industry is a scam to rip people off. In fact, I think insurance is an extremely important social utility. I just happen to be against the notion that jury award make this huge impact on insurance premiums, because in most fields (and depending on the insurance company itself), they don’t.

  • avatar
    PandaBear

    I think financially and administratively, the insurance industry as a whole is doing very efficient. But the overhead came not from themselves but the extra work between the policy holders, the mechanics, the lawyers, the doctors, the claim adjusters, the sales, etc…. You just have to pay x dollars per hour for all the overhead these people spend time on.

    Ask any mechanics or body shop how much it cost to repaint a bumper, the first thing they will ask is do you pay out of pocket or do you do it by insurance. Now take a look and see if you are an above average driver (I am as I only have 0 claim filed since I start driving, one minor accident that I pay out of pocket), and now take a look at how much you can save by having liability only insurance.

    I’d think it is more efficient to pay someone $300 for a scratched paint or $500 for a fender bender than having the insurance foot a $1000 bill, then having to raise my rate to gain $1200 back over 3 years.

  • avatar

    Robert,

    Was that Zappa reference in the podcast intentional?

    If it was, you’ll know what I mean. If not, it was a one in 12 coincidence.

    Or maybe it was in the stars!

    Kevin

  • avatar
    SherbornSean

    As usual, Glenn A is the voice of reason.

  • avatar

    KevPod1:

    We’ve taken to hiding song references in our work. Keeps us amused.

  • avatar

    I also appreciate your gentle but firm skepticism of astrology. I’ve never heard it (accurately) dismissed as “horseshit” in such a cordial manner.

    Kevin

  • avatar
    aarons12

    “pay at the pump” insurance has been talked about for years as one way of having everybody contribute to the cost of basic liability insurance, with the excess coverage being sold by various channels as it is now and as was pointed out. like many good ideas, it is meeting lots of obstacles, and there are also competing ideas out there.

    There is an insurance entrepreneur here on Long Island who has begun experimenting with leases that include insurance. according to him, the efficiencies that would be introduced, coupled with payment up front of the insurance premium for the entire period of the lease (increasing investment income opportunities) will allow the cost to be greatly reduced. (comments on that are welcome, it’s not MY idea)

    But right now the bottom line in many states is that car insurance rates are dropping because of competition (see one of the comments above about someone who stuck with their carrier and got a nice rate reduction – I represent 15 companies and every one of them has reduced rates in the past two years, some by more than 25%) the state of mass just announced an 11.7% reduction.

    So as far as the politicians are concerned, the system is working pretty well and they are not getting that many complaints. so they are simply working on more pressing issues in the insurance area, such as health care for more people, workers comp problems, and coastal crises in some areas such the NY Metropolitan area.

    one major national issue that car insurance pretty well avoids is the catastrophe problem. even down in areas hit by Katrina, by the time you knock out all the people who only carry liability insurance, and that many had fled in their cars so they weren’t damaged, and the fact that cars simply don’t cost as much as houses (most of them, anyway), the losses were just not that high.

    on the other hand, the World Trade Center caused more insured damage than several major hurricanes combined up until katrina. it’s now being estimated that the insurance industry needs to prepare for a $100 Billion claim every few years, with those costs going up as time goes by, costs go up, and concentrations of people increase.

    the car insurance industry is coming to be dominated by big players competing heavily against each other, keeping prices down in a great example of the best of capitalism. yes there are bad people everywhere, but we have to work on those issues, not look for conspiracies that don’t exist.

  • avatar
    aarons12

    and by the way, i think the level of intelligence and knowledge at this site in the comments is amazing!

    yay us!

  • avatar

    Another option would be to have all licensed drivers pay for liability as part of their licensing fee. That way not only car owners cover the cost. Collision and other coverage would be a separate policy held by the vehicle owner.
    Oh wait, I just described the auto insurance model in Quebec.

  • avatar

    I’m an offended Libra! ;)

    28 years of driving and not ONE SINGLE accident where I was at fault.

    And in that time period only two accidents:
    I had a lady run a light and hit me. I had a teenage girl rear-end me in traffic. In both instances I could see the accident coming and could not escape due to traffic circumstances… in otherwords, I had to take the hit to avoid a worse accident (like a head-on.)

    So what about being a Libra makes me somehow more dangerous? Perhaps it is because inattentive women are attracted to me and my cars? ;)

    Oh, and Johnny, I have a turbo on my car at no extra insurance cost. Of course that turbo makes a 45 HP motor into a 90HP one… cause I’m driving a Diesel. ;)

    –chuck

  • avatar
    tlcastle

    Insurance is crazy, and you people are getting ripped off. I drive an IS300 and a 2006 Impreza, I’ve caused 2 accidents (albeit 10 years ago) and recently had 3 speeding tickets, two of them 20+ mph over the limit.

    For full coverage insurance, plus insurance on my whole house (which is 75 years old with original wiring), I pay $98 a month.

    I’m very happy with this arrangement, but it defies reason to say it’s fair. The only thing I can think of is that my credit rating is very high. If I had to pay $500 a month to insure a truck I’d kill myself.

  • avatar
    satire

    Insurance is not a god given right. They provide a service and try to make a little profit. Unlike, say, the oil companies who provide a product and make a BIG profit. Why aren’t we bitching more about them?

  • avatar
    tlcastle

    Who said it was a right? I don’t think that was the point of this discussion. The question was whether it makes any sense.

  • avatar
    Stephan Wilkinson

    People who buy car insurance from a company that avidly advertises with lizards and cavemen–hey, it’s cute, and cheap–get what they deserve. I have Travelers, have for 35 years on cars, house and airplanes, and they’ve never let me down.

  • avatar
    Ryan

    satire, at least big oil screws everyone over equally. Insurance is selective about who they screw over, and how hard they do it.


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