By Keith Selvin
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I’ve spent the majority of my career in the insurance industry, and every day I see how many misconceptions people have about how auto insurance works. One common refrain is that “I’ve been paying into this insurance policy for years and never filed a claim. What good is insurance if you never use it? Of course I’m going to file a claim on that $600 hit-and-run in the Walmart parking lot.”
That’s understandable, of course. You don’t want to feel like you’re wasting money, but it just might be the worst idea you’ve had since buying a Flowbee.
1. “At-fault accident” does NOT mean it was your fault.
Have you ever been rear-ended by a driver who didn’t have insurance and filed a claim to get your car fixed? If so, congratulations: you now have an at-fault accident on your record. Insurance companies don’t really care whose fault it was – they care about the statistical likelihood that they’ll have to pay out on a claim. That means if you’re the “type of person” (read: normal) who files a claim without any third-party insurance information (because they don’t have insurance), your insurer records having to pay a claim with a 0% chance of subrogation. (Look it up, fellers.)
Okay, fine. The Wikipedia page is terrible and full of legalese. Basically, subrogation means the act of one insurance company reimbursing another. When you get rear-ended by a driver who does have insurance, your insurance company still pays to fix your car in the short term, but is simultaneously communicating with the third party’s (meaning the jerk who ran into you) insurance company. When their insurance company reimburses your insurance company completely, it becomes a “not at-fault accident.”
“Great,” you think, “I’ve been rear-ended, the other person had insurance, their company paid for my damages, I did nothing wrong. I’m in the clear!” And the answer to that is no, no you’re not, because…
2. “Not at-fault accidents” count against you too.
“Now wait just a minute. Someone hit ME!That’s true, but while you, dear reader, may be a beacon of truth and light, we live in a dishonest time. There is a TON of insurance fraud out there. How easy would it be to purposely rear-end your buddy, who just happens to work in an auto repair shop, collect on the insurance, and get the car fixed for virtually nothing (labor is almost as expensive as parts in some cases), and double your money for half a day’s work?
The answer is that it’s not really hard at all, which is why insurance companies look at the big picture. How accident-prone is this person? Too many “not at-fault” accidents on their record? Most higher-end insurance companies won’t even sell you a policy. Again, it all comes down to risk assessment.
In many states there are no-fault laws, which means that the fault of the accident doesn’t have to be completely attributed to one party. The accident can, for example, be 80% John’s fault and 20% Jane’s fault. I can’t tell you have many customers say that their driving record is clean, “except for that one no-fault accident I was in. But someone hit me! After running a CLUE report (an accident and claims history), an at-fault accident appears and the price nearly doubles.
Why? While John rear-ended her at 70 mph, he may also have been in the other lane and swerved to avoid a deer. The insurance companies refer to the police report, see the whole story, and come to an agreement that John’s insurance company is liable for 80% of the damage, while Jane’s insurance will cover the remaining 20%. You just got an at-fault accident on your record for doing absolutely nothing. Hooray!
In all seriousness, insurance boils down to statistics and risk assessment. Companies look at the raw data and say, “Welp, we know this accident wasn’t her fault, but it does indicate that she is more accident-prone than people who never file claims, and therefore is more likely to cause us to pay out in the future – because math. Which brings me to my next point…
3. Don’t file frivolous claims. Seriously.
As an insurance agent, I’ve looked at a lot of driving records. This means both Motor Vehicle Reports and CLUE reports (tickets and accidents/claims, basically). I can count the number of completely clean, claim- and violation-free records I’ve seen on two hands. And maybe a couple toes. Okay, I’ve seen probably seen more than 20 pristine records over the years, but the point is that they’re rare. Like unicorns, really.
I certainly understand the thought process behind “what’s the point of paying for insurance if I never use it,” but I’m here to tell you that thought process is dead wrong. Your policy is there for two reasons: to keep you from getting caught up in the litany of legal problems that come with driving without insurance, and – this is the big one – to protect you from being sued for everything you have in the event you cause serious damage.
What I see all too often, however, is people who have a single-car fender bender with $800 in damage, then file a claim. First, your deductible is probably $500, which means your insurance company is only paying $300 to fix your vehicle. Second, because of the claim you just filed, your insurance could double. For five years. So you can bite the bullet and not file a claim of any kind, or you can see a hefty increase in your premiums and end up paying MUCH more over the next half decade. That being said, I can’t give you a fixed number as to how much your premium will increase. I can only guarantee that it will, because…
4. Not all insurance companies are created equal.
So you had to file a claim, and your insurance went from $120 per month to $200 per month. “I should be ashamed of myself for falling asleep, hitting the nuclear power plant at 120 mph, irradiating the entire town, and totaling my vehicle in the ensuing meltdown. Guess I’ll just pay the extra $960 a year because I don’t have another option.”
Wrong again. People think there are a few, minimal factors that go into determining how much you pay for insurance: your age, car, driving record, and if you’re really in the know, your credit. While those are indeed all rating factors, or the things that determine your price, every single insurance company in the country rates those things differently.
There’s a joke in the office that one carrier has a DUI discount, because in certain cases, if you gave the same person a DUI, their price will be lower than it would with a speeding ticket. If you don’t live somewhere that rhymes with Galifornia, credit can be a HUGE factor for some companies. With certain carriers, you could be entering your car in a demolition derby, but as long as your credit and payment history are spotless, the premium is hardly affected. Some companies practically cut your rate in half if you’re over 55. Others have good student or distant student (100 miles from home without a car) discounts so huge, you could almost compare it to a policy without your 18-year-old student listed altogether.
My point is no two companies are the same, so if you find yourself in a situation where your price has gone up because of something on your driving record, from a moving violation to a late payment, don’t just throw up your hands and fork over the extra cash. There’s almost always a more affordable option out there. That being said…
5. It is ALWAYS your fault.
I’m circling back because I can’t stress this point enough. Several times a day I have a conversation like the following:
Me: “So, do we have any accidents, tickets, claims, anything like that on the driving record?”
Customer: “Nope, I’m completely clean. Nothing on my record at all!”
Me: “So I see we filed a claim on January 15, 2012 – what happened there?”
Customer: “Oh, I slid on a patch of black ice and rammed a guard rail. The car was totaled, but it wasn’t my fault!”
That’s an accident. You didn’t mean for it to happen, or we’d call it “maliciously damaging your own property for no reason.” An insurance company is going to call that an at-fault accident, and you’re going to pay extra for a long time.
The bottom line is this: you have to have insurance, or you’ll end up paying more in fines than if you’d just had it in the first place. Most agents don’t have the time to explain to you how all of this works, but if you take a look at the industry from the insurance companies’ perspective, it’s easy to see that there’s a right way to do this whole insurance thing. And more likely than not, you’re doing it wrong.
Keith Selvin has been a licensed agent at Goji since May of 2013. He can be reached at firstname.lastname@example.org.
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