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Here are our main messages on auto insurance, starting with advice on choosing
a company.
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It is very likely that you can save $300 or more a year by switching auto
insurance companies. Many consumers will save more than $1,000. Our premium
comparison table shows you how companies’
rates compared for five different policyholder types at seven different
Bay Area locations.
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One illustrative Oakland couple for whom we checked premiums for a common
level of automobile insurance coverage would pay $3,979 per year with Farmers,
one of the state’s largest auto insurers, but would pay only $1,518 per
year with Wawanesa—a difference of more than $2,400. Even for a single
adult with one car, the potential savings are large. Annual premiums for
a 41-year-old Oakland woman were less than $1,050 with several companies,
including Amica Mutual and Wawanesa, and more than $1,650 with several
other companies, including Farmers and State Farm—differences of more than
$600.
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On our premium
comparison table, companies
that had relatively low rates for most of the policyholders and locations
we checked are Wawanesa, Horace Mann, Amica Mutual, USAA, Mercury, Metropolitan
Direct, 21st Century, and GEICO.
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Most companies, even those that are not the standouts for service, seem
to provide most customers satisfactory claims handling and other services.
About 93 percent rated all aspects of the claims services they received
at least “adequate.”
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Our Ratings Tables show how companies were rated for service in our
survey of policyholders who had filed claims. Companies rated especially
high for their claims service included Amica Mutual, USAA, GMAC, and GEICO.
(We don’t have policyholder survey data for all the companies for which
we have reported premium information.)
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Our Ratings Tables also report the rate of justified complaints for
each company. These rates, which take into account the number of vehicles
each company insures, vary sharply from company to company. Most of the
companies with the lowest premiums—including Wawanesa, Amica Mutual, USAA,
Mercury, Metropolitan, 21st Century, and GEICO—also had relatively low
complaint rates.
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You will want a company that will stand by you if you have a few accidents
or violations. Our Ratings Tables show substantial differences among
companies. Some companies were rated “inferior” by 10 percent or more of
their surveyed policyholders when we asked about “not unreasonably cutting
coverage” and some were rated “inferior” by more than 20 percent of surveyed
policyholders when we asked about “not unreasonably raising premiums.”
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You can use our premium
comparison table as a starting point in deciding which companies to check for rates, but
be sure to check several companies, since no company wins for all drivers.
You can check rates on many companies’ websites, or you can find agents
in the Yellow Pages and call. We give you this worksheet to help you organize the information companies will want.
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You might find it helpful to check premium-comparison websites like insweb.com,
insurance.com, and answerfinancial.com. But be wary. You will have to put
in time entering information and they will generally give you rates from
only a few companies with which they have business relationships. On the
other hand, we have found that they sometimes identify companies with very
good rates.
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It makes sense to check competitive rates every few years. Although some
companies tend to be consistent price winners, many companies do change
their ranking substantially over the period of several years.
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When you shop for premiums, you’ll have to push hard to get reliable information.
Agents frequently fail to mention the most attractive available plans and
sometimes quote inaccurate rates for the plans they do offer. Always ask
an agent whether he or she has any other plans with better rates.
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Even if you are an inexperienced driver or have a poor driving record,
you have the right to get insurance with the state’s “assigned risk” plan.
But don’t turn to this “high risk” arrangement quickly. Shop several regular
companies. Keep trying even if you are turned down by the first; each company’s
standards are different and they change continually. Be sure to remind
the agent if you or a family member has insurance for your house or another
car with the agent’s company. If you must join an assigned risk plan, try
again to get regular insurance coverage after a year of good driving. Many
of the policyholders in these plans get out after a year.
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Don’t terminate your insurance with one company until you have arranged
coverage with another. You might even consider starting your new coverage
about 60 days before your old coverage expires because the new company
can reject you fairly easily in the first 60 days of your coverage.
Whatever company you choose, be careful to select just the coverage you
need and to explore any available price breaks based on your driving habits
and other circumstances—
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Consider purchasing a policy with high “deductibles.” By agreeing to pay
small losses out of your own pocket, you can avoid paying the company to
do a lot of paperwork. You may not want to collect from the company on
losses of less than $500 or so anyway—for fear the company will refuse
to renew your policy or will raise your rates.
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Consider dropping collision coverage when your car’s value drops to a level
that you could lose totally without serious disruption to your life. Although
your company would not pay you much for the loss of an old car, it won’t
continue to lower your rates significantly once the car’s value drops below
a few thousand dollars.
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Try to take at least as high dollar limits on the coverage that protects
you if you are a victim of an uninsured motorist as you take on the coverage
you buy to pay other people’s claims. Increased limits on “uninsured motorist”
coverage cost relatively little.
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Before purchasing “medical payments” coverage, consider whether you could
spend the money more wisely improving your family’s general health insurance.
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Keep your agent or broker informed of any change in your circumstances
if that change might make you eligible for a premium discount under your
company’s rating plan. Be sure to inquire about price breaks if—
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You have, or will consider, other insurance with the same company (homeowners,
for example);
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More than one car is insured by the same company;
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No one in the family has had a serious accident or traffic violation in
the past three, four, or five years;
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You drive a car less than 12,000 miles or, better still, less than 7,500
miles each year;
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Your car is parked in a garage or off the street;
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Your car has air bags, anti-lock brakes, or antitheft devices;
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Your car is not used to commute to work or for business;
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Your commute is short, or you work less than a five-day work week;
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You are a member of a car pool;
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You are driving a relatively inexpensive car and/or one with a relatively
good “loss experience” (the loss experience reflects how frequently a car
is involved in accidents and how much it costs to repair if it is damaged);
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You’ve moved to a less urbanized area;
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You are insuring no regular driver under 25 years old;
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Insured drivers under 25 have completed driver training, have good grades,
are students at a school over 100 miles away, or are restricted to a less
expensive car;
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You are 55 or over and have completed a defensive driving class within
the last three years;
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You are a nonsmoker.
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Consider the cost of insurance along with the cost of gas and parking when
you are deciding how to commute to work. A car pool or public transportation
might save you $250 or more in insurance per year.
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Consider the cost of insurance when you are buying a new or used car. Most
companies have discounts (or surcharges) on certain makes and models of
cars based on the loss experience of each car.
You pay dearly for auto insurance. Be sure you get what you have coming
if you have a claim.
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Report claims promptly. But don’t sign any settlement until all your bills
are in or you know definitely how much you have lost. For auto body repairs,
insist on using a repair shop you can trust—as long as it charges reasonable
rates.
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Be sure not to overlook available claims. For example, your “medical payments”
coverage might pay for the deductible amount under your health insurance.
Also, you can claim under your comprehensive coverage for some losses that
are often overlooked—such as accidentally damaged upholstery.
The Full Story
The annual cost of auto insurance for a common level of coverage for a
San Francisco household we checked (mother, father, and 17-year-old son)
was $2,585 with Safeco and $14,277 with Farmers, the state’s second-largest
personal auto insurance company. That’s a difference of $11,692 per year.
It takes a little effort to shop for insurance. But it is easier these
days than it once was to get at least a reasonably competitive rate using
the California Department of Insurance website (www.insurance.ca.gov),
commercial rate-comparison websites, and websites maintained by many of
the companies. Even if you have to request quotes by phone from companies
and agents, the effort is small compared to the potential year-after-year
savings.
You won’t want to give up having a company that will deliver quality service,
financial soundness, and a willingness to stick with you if you have an
accident or violation or two. But you don’t have to. Such concerns are
not a reason to stand pat.
In this article, we will give you the background you need to shop successfully
and comparisons of individual companies to help you focus your shopping
efforts on the best prospects.
The first step in shopping is to decide on the types and levels of coverage
that will keep your risk to an acceptable level at a reasonable cost. You
must decide among a broad range of available auto insurance coverage options.
When you injure someone else or someone else’s property, you may be required
by law to pay for the loss. Your home, your savings, and even your future
wages are vulnerable.
“Liability” coverage pays the amount of money for which you may be liable
for bodily injury and property damage to others, up to certain limits,
and covers legal fees incurred in your defense. Bodily injury claims can
include wage losses, medical expenses, rehabilitation costs, and “pain
and suffering.” Property damage can include damages to someone else’s car,
building, or other property.
Your liability coverage will generally protect you, your spouse, other
members of your household, and anyone else who drives your car with your
expressed or implied permission. If the damages for which you are found
liable exceed the limits specified in your policy, you’ll have to pay out
of your own pocket.
The limits your insurance company will pay are usually specified in the
policy as a set of three numbers divided by diagonal lines. For example,
a 100/300/50 policy pays a maximum of $100,000 for bodily injury to one
person, a maximum of $300,000 for total bodily injuries when more than
one person is hurt in an accident, and a maximum of $50,000 for property
damage in a single accident. Some policies are simply written with a single
limit, say, $300,000, and will pay up to this limit even if only one person
is injured or if only property is damaged. Because of its greater flexibility,
single-limit $300,000 coverage is worth somewhat more than 100/300/50 split-limit
coverage.
Since your insurance not only protects your assets but also assures financial
relief for anyone you may injure, California law requires you to provide
for at least a minimum level of financial responsibility. You can meet
this obligation either by carrying liability insurance with at least a
15/30/5 level or by posting a $35,000 bond with the Department of Insurance.
If you are considering driving without liability insurance, you should
realize that once you have driven without insurance and have had an accident,
you may be treated by the insurance industry as a person who takes risks;
you may have to purchase insurance at a higher rate or under an “assigned
risk” plan.
Most drivers buy liability insurance even when it is not required and insure
beyond the legal minimum—perhaps out of a social concern for the possible
victims of their negligence or perhaps out of a personal concern to protect
their assets from catastrophe. Individuals with substantial assets (or
with expectations of substantial assets in the future) have the strongest
reasons to purchase sizable liability coverage: they have the most to lose;
they are the most attractive targets for suit; and they may get the least
sympathy from juries.
If you are prepared to pay for even a modest 25/50/10 coverage level, the
cost of much fuller coverage may be modest. As this figure
shows, a policyholder with 100/300 bodily injury liability coverage
(and $500 collision and comprehensive deductibles) might expect to increase
his or her total annual premium by only about three percent by moving up
to 250/500 coverage and might expect to save only about seven percent by
moving down to 25/50 coverage.
You may also want to consider “umbrella” liability coverage. Although the
terms of such coverage vary from company to company, umbrella policies
generally take over above your basic auto and homeowners liability insurance
to cover injuries you might be liable for in connection with your car,
your home, a boat, or other property, and your liability for other injuries
you might cause, for instance, through libel or slander. When you purchase
an umbrella policy, you must first raise the liability limits on your auto
and homeowners policies to the maximum offered by the company.
“Medical payments” coverage takes care of medical bills if any member of
your family is injured in an auto accident, or your funeral expenses if
death results from such an accident. Whether a family member is driving
your family’s car, driving a rented or borrowed vehicle, riding as a passenger,
or walking and is struck by a car, you can collect these payments. Moreover,
medical payments protect passengers who ride in your car. Most important,
payment is regardless of fault. Limits on the amount of payments are stipulated
in your policy.
Most of the expenses that would be paid by your medical payments coverage
will be paid by your family’s health insurance policy. Since medical payments
coverage is relatively inexpensive, usually about $75 per year for a $2,000
limit, it is reasonable to buy a minimal amount of coverage to fill in
possible gaps in your health insurance and to help cover medical expenses
for your passengers who may not have their own health insurance. But beyond
that, you may do better to spend your money on liability insurance or on
a more comprehensive health insurance policy—to protect you and your family
from any disease or injury that might befall you, not merely to cover those
injuries that involve automobiles.
“Collision” and “comprehensive” coverage are often referred to jointly
as “physical damage” insurance. They pay for repair or replacement of your
car, regardless of who is at fault. This coverage is not required by state
law, but if your vehicle is financed, your lender may require you to purchase
it.
Collision coverage pays if your car rolls over or collides with an object,
including another car. Comprehensive coverage pays for damage to your car
from almost all other causes—including vandalism, explosion, fire, wind,
and collision with animals. It will even pay if your pet chews the upholstery.
Comprehensive also pays if your car is stolen.
Both collision and comprehensive pay only up to the “actual cash value”
of your car. If you expect compensation for a special paint job or other
unique feature, you will have to arrange in advance for special coverage—and
pay an extra premium.
As the actual cash value of your car diminishes, the cost of physical damage
coverage declines—but only declines significantly for the first few years
of the car’s life. You pay about the same collision premium for a 10-year-old
car, for which your insurance company would pay you almost nothing, as
someone else pays to insure a six-year-old car. Accordingly, collision
coverage becomes an increasingly wasteful purchase as your car grows old.
Collision and comprehensive coverages are sold with a “deductible,” a specific
amount you agree to pay out of your own pocket on a claim before you are
entitled to collect from your company. By taking a high deductible, you
protect the company from the paperwork of processing small claims and you
do so without exposing yourself to the possibility of catastrophic loss.
In general, the wisest way to manage your money is to take as a deductible
as large an amount as you can afford to lose without seriously disrupting
your life.
The considerable savings that can be made in this way are illustrated on
this figure. For example, the sample policyholder
for whom we did the calculations in the figure would probably save about eight percent of his total insurance bill by
increasing his collision deductible from $500 to $1,000 but would add about
18 percent to his total insurance bill by reducing his collision deductible
from $500 to $100.
The virtues of substantial deductibles are more obvious when you consider
that you may not even want to file claims with your insurance company unless
damages exceed $500 or so. Filing small claims might lead a company not
to renew your coverage or might lead to higher premiums.
If you are the victim of an accident in which another driver is at fault,
you might expect to collect from that driver’s insurance company. But despite
mandatory coverage laws, many drivers are uninsured. Also, even an insured
driver may be underinsured if your loss is large. If you are the victim
of an uninsured or underinsured motorist, you can turn to your collision
coverage (if you have it) for repairs to your car, or to your medical payments
coverage (if you have it) for your medical bills. But you will need other
coverage if your losses exceed these coverages and to compensate you for
“pain and suffering.” “Uninsured/underinsured motorist” coverage fills
this gap if you can show that the other driver was at fault or was a hit-and-run
driver.
All the reasons that argue for higher limits on liability coverage—where
you are protecting someone else—also argue for high limits on uninsured/underinsured
motorist coverage—where you are protecting yourself. The cost of increasing
your limit from 25/50 for uninsured/underinsured motorist coverage to 100/300
will generally be less than $50.
“Towing and road service” coverage will pay not only the costs of towing
but also labor charges for any repairs that can be made on the road. Most
companies offer this coverage for less than $20 per year. Under some policies,
your towing and road service coverage will reimburse you only for $25 per
claim. But for $3 or $4 more per year, you can get coverage up to $75 per
claim. Though towing and road service coverage is inexpensive, an auto
club membership that includes towing and road service might be a better
deal for you if you would use other club benefits.
For a small additional premium (usually $30 to $70), some insurers will
broaden your collision or comprehensive coverage to include reimbursement
for required car rental while damages to your car are being repaired. The
reimbursement may be capped at $20 or even less per day, so take a look
at whether this coverage makes sense for you.
Armed with a knowledge of various possible coverages, you can ask each
company you consider to give you a breakdown of its premium by type of
coverage and to quote premiums for different liability limits and deductible
levels. A typical annual premium quotation for a married couple with clean
driving records and two cars in the Oakland area might look like the following:
| Bodily Injury Liability | $100,000 / $300,000 | $310 |
| Property Damage Liability | $50,000 | $310 |
| Medical Payments | $5,000 | $175 |
| Uninsured Motorist Bodily Injury | $100,000 / $300,000 | $135 |
| Comprehensive | $500 deductible | $150 |
| Collision (with waiver of deductible) | $500 deductible | $615 |
| Emergency Road Service | | $10 |
| Rental Reimbursement | $25/day, $750 maximum per claim | $85 |
| Total | 1,790 |
California laws, including Proposition 103, passed in 1988, set out “rating
factors”—that is, how a driver’s characteristics may influence the premium
he or she is charged. Under state regulations, companies are required to
give the greatest weight in determining rates to three “Primary Factors.”
These three factors are: driving record, number of miles driven annually,
and length of driving experience. After these three factors, companies
are permitted to select from a list of 16 “Secondary Factors” in determining
rates. The average weight of these secondary factors must not exceed the
weight given to the primary factors in the company’s premium calculations.
Note that because it is the average weight of the secondary factors that
is considered, the individual weights of some of the secondary factors
may be greater than those of the primary factors.
Knowing the factors insurance companies consider will give you a sense
of how warmly you can expect the companies to greet your requests for coverage
and may also give you some ideas for changes you can make in your life
to cut your insurance rates.
Driving record has a big effect on a person’s rates. Industry data indicate
that an individual who has had two accidents in the past two years is almost
two-and-a-half times more likely to have an accident in the coming year
than someone who has had no accidents. Similarly, the accident rate for
individuals with two traffic convictions in a three-year period is twice
as high as the rate for those with no convictions.
How much weight companies give to driving record is up to them, but in
California, companies are required to give you at least a 20 percent discount,
compared to what you would otherwise be charged, if you qualify as a “Good
Driver.” You qualify as a Good Driver if you have been licensed to drive
a motor vehicle for the previous three years, you have not had more than
one violation point during the previous three years, you were not a driver
of a motor vehicle involved in an accident that resulted in death or in
total loss or damage exceeding $500, and were principally at fault.
Most companies consider the driving records of everyone who will be driving
your car or cars. Therefore, if you have a good driving record but your
spouse, who will be driving your car, has had violations or accidents,
your rates may reflect your spouse’s record. But California law requires
that a driver who has a good enough driving record to qualify under the
legally mandated definition as a Good Driver must be offered a policy with
a “named driver exclusion” so that he or she need not be saddled with the
poorer driving experience of another person.
Age cannot be a factor in setting rates. But years of driving experience
can be. The longer you have been driving, the lower your premium will be.
This hurts younger drivers as well as older drivers who did not start driving
until later in life. If you are a younger driver, make sure you ask about
and take advantage of any discounts for driver training courses or for
good grades (firms often give discounts for usually a “B” average or better)
while you are in school. Studies have shown that driving training courses
do not make better drivers, but careful drivers tend to enroll in them,
so driver training serves as an identifier of these better risks. Most
companies will also offer a discount if you are married.
The fewer miles you drive each year the lower your premium will be. If
you live in a remote area and have to drive long distances just to do your
shopping, there is not much you can do to reduce your annual mileage, but
if you live in an urban or suburban area carpooling and public transportation
are simple ways you can cut your insurance bill. Not only will you gain
by reducing your annual mileage, but with many companies you will get an
additional discount for using your car only for pleasure driving.
Some areas present more chances for accidents than others or have higher
repair costs or medical and legal charges. These differences sometimes
result in auto insurance rates that are twice as high in some areas as
in others.
Insurance companies charge more for insurance on cars that are relatively
expensive to replace, expensive to repair, or prone to damages or theft.
Some companies charge extra for, or refuse to insure, high performance
cars (Corvettes, for instance) because they think people who drive them
are likely to be less responsible than other drivers.
This table shows vehicle-to-vehicle differences
for one illustrative driver we checked. For example, comparable coverage
from 21st Century might cost $1,110 for a Honda Odyssey and $2,004 for
a BMW 530i—a difference of $894 per year. As you can see from this
table, some types of cars (luxury sedans) tend to
be relatively expensive with all insurers and others (minivans) tend to
be relatively inexpensive with all insurers. On average, our sample driver
might expect to pay about $1,385 for typical coverage on a minivan, $1,435
for a mid-size family sedan, $1,485 for a compact car, $1,550 for an SUV,
and $1,705 for a luxury sedan.
In short, you will want to consider insurance costs when deciding what
vehicle to buy, but the impact of your choice may be larger or smaller
depending on which insurance company you select. You can find information
on relative insurance costs in The Car Book, by Jack Gillis, which can
be ordered from Center for Auto Safety, 1825 Connecticut Avenue, NW, Suite
330, Washington, DC 20009-5708.
If you are considering switching insurance companies, and have been “loss
free” with your current company for a while, you will want to consider
in the calculation any longevity discounts your company will be granting
you in the future. Many companies offer discounts of five to 10 percent
for three years of coverage without an at-fault accident and may increase
the discount at six years and nine years. Another benefit of longevity
is that your current company might examine your entire history with it
when deciding whether or not to reassign you to a higher risk category
(and charge you higher premiums) if you have accidents, whereas any new
company might examine only your driving record in the last three years.
Many insurance companies offer lower rates on homeowners insurance if you
insure both your car and your home with them. (Under Proposition 103, your
homeowners insurance coverage can’t be considered in setting your auto
insurance rates, but your auto coverage can be considered in setting your
homeowners rates.) From a consumer’s point of view, this dual-policy pricing
is an undesirable practice because it makes shopping more difficult; to
find out the exact savings you might realize by switching auto insurance
companies you would have to shop for homeowners insurance at the same time.
But even if you don’t have the time to do that, it still makes sense to
shop for auto insurance now; it is unlikely that any homeowners insurance
discount you might lose will be nearly as large as the potential savings
on your auto insurance premium.
You have two main considerations in choosing among auto insurance companies:
how much they charge and how good their service is. You may also want to
give some thought to a company’s record on terminating policyholders, its
financial stability, and a few other factors.
Our premium
comparison table shows annual
premiums for 28 companies doing business in California. Each year, the
California Department of Insurance surveys insurers and asks them to provide
annual premiums for a selection of hypothetical policyholders living in
various zip code areas throughout the state. We report on our premium
comparison table the premiums for standard
coverage for the 28 listed companies for five profiles in seven Bay Area
locations. The companies listed on our premium
comparison table include the state’s largest personal auto insurers
and include all the companies with the most competitive rates on the Department’s
website.
As you can see, the company-to-company rate differences are dramatic—annual
differences of hundreds of dollars in many cases, and thousands of dollars
in some cases. The rates on our
premium
comparison table will probably not apply to you exactly; most readers
will differ in location of residence, vehicle usage, vehicle type, or other
ways. But the rates give you a good starting point for your own shopping.
Companies with low rates on our
premium
comparison table are good prospects for you.
You may be able to focus in even more tightly on your best prospects by
using the same Department of Insurance website as CHECKBOOK’s researchers
used (just go to www.insurance.ca.gov and search for “Premium Comparison
Survey”). Try to select a profile that is well-fitted to you in terms of
driver experience, driving record, and other variables. With that profile,
you will be able to get premiums for the available companies.
Once you have a selection of companies that seem to be good prospects,
you may be able to get quotes directly from these companies’ websites.
Or you can check the Yellow Pages to locate an agent or broker. You can
then ask each agent or broker for a price quotation for the coverage you
want. The Department of Insurance website has phone numbers of all the
companies.
You might fill out this worksheet as
a guide for talking in person or by phone with several agents, or you might
make copies of a completed worksheet to send or fax to a few agents. Some
“independent” brokers or agents sell policies offered by many companies;
so one of these agents can give you quotes from various companies. But
other companies are not available through independent brokers or agents;
to get these companies’ rates, which often are the lowest rates available,
you have to contact their offices or agents directly.
In addition to seeking out companies based on their relative rankings on
our premium
comparison table (or the
Department of Insurance website), you may want to try using one of the
commercial insurance comparison websites, such as, www.insweb.com,
www.insurance.com, or www.answerfinancial.com. But these sites
tend to sound better than they are. Insweb.com, for example, claims it
will enable you to “compare quotes from the most trusted companies in insurance”
and lists more than 25 participating companies on its website. But when
one of our researchers went through the process of entering the detailed
information necessary to get a quote from Insweb.com, the site returned
quotes from only seven companies. Other insurance shopping sites returned
quotes from even fewer companies. These websites return rates only for
companies with which they have business relationships, and we have found
that those rates are not generally the best available in California.
As you shop, you might find that you don’t qualify for a company’s best
rates if you don’t have a clean driving record. Just ask the agents you
deal with for the best rates for which you do qualify.
If you have so many accidents or violations that it is difficult for you
to qualify for coverage at all, you have the right to get insurance through
the state’s “assigned risk” plan (discussed below). Rates in the assigned
risk plan are often three times or more what you’d pay for a “preferred”
policy.
Companies’ actual underwriting practices—which drivers get the best rates,
which pay more, and which they won’t insure at all—are not publicly disclosed.
And they may include factors other than such obvious matters as years of
driving experience and accident histories. For example, even if two drivers
are the same age and have the same accident history, which makes them borderline
cases for getting the best rates, one who is a homeowner might qualify
with one company but not the other because one of the companies favors
homeowners.
You will want to consider price in relation to the quality of service you
can expect the different companies to provide. Probably the most important
type of service is claims handling. We give you two types of information
to help you evaluate companies’ service: a survey of policyholders and
an analysis of complaints.
Our Survey of Policyholders
Our Ratings Tables contain our data on companies or insurance groups
rated by 10 or more respondents in our survey of policyholders. (The survey
data on our Ratings Tables are for a group of companies to the extent
that customer survey responders identified companies in such a way that
we could connect them with the group.)
We surveyed CHECKBOOK and Consumer Reports magazine subscribers and collected
ratings of individual insurance companies from policyholders who said they
had filed an auto insurance claim within the preceding three years. These
consumers rated their companies “inferior,” “adequate,” or “superior” for
“simplicity of claim procedures,” “adequacy of claim payment,” and other
elements of service. The Ratings Tables
show what percentage of policyholders
rated each company “superior” on each of these elements.
At the time of our last full, published report, USAA, Amica Mutual, and
AIG were all rated “superior” for “simplicity of claim procedures,” for
example, by more than 70 percent of their surveyed policyholders. In contrast,
Farmers and Mercury got such favorable ratings from fewer than 50 percent
of their surveyed policyholders. (For a further description of our policyholder
survey and how its results and our other research results should be interpreted,
click here.)
Complaints
Another way to assess quality is to count policyholder complaints and to
look at each company’s number of complaints in relation to its volume of
business. While customers might have rated a company less than “superior”
on our survey of policyholders even if the company’s deficiencies were
minor, filing a formal complaint with the California Department of Insurance
presumably reflects serious dissatisfaction.
On our Ratings Tables, we have reported the number of “justified” private
passenger auto insurance complaints closed in 2002. (To be considered “justified,”
a complaint must meet certain criteria set out by the California Code of
Regulations and usually involves an insurer’s acting against insurance
regulations or breaching the insurance contract in some way.) We have also
reported the “justified complaint ratio” for each company. The complaint
ratio is intended to take into account the fact that some companies do
much more business than others and therefore are more exposed to incurring
complaints. It is calculated as a company’s number of 2002 justified complaints
per hundred thousand “exposures” (an “exposure” is generally defined for
auto insurance as a vehicle covered by the policy). The companies with
the lowest ratios were California Capital, Wawanesa, and Metropolitan Direct,
while Infinity, Financial Indemnity, and AIG had the highest.
The data reported here are for groups of companies; we have combined personal
auto complaint data for individual companies within the groups.
If the price is right and service appears satisfactory, your next question
will be whether you can be confident that the insurer will not terminate
your coverage or dramatically raise your rates because of accidents or
traffic violations. Termination by your company at best is inconvenient
and at worst can force you to pay rates hundreds of dollars higher when
you find a new company or enroll in a special plan for high-risk drivers.
California places certain legal restraints on termination. The law allows
cancellation or nonrenewal of an issued policy only in cases of fraud/misrepresentation,
nonpayment of premium, suspension or revocation of license or registration,
or substantial increase in the hazard insured against. An insurer may not
nonrenew coverage solely based on age or the fact that there is an outstanding
claim on the policy.
The procedures for termination generally involve sending a notice to the
policyholder at least 20 days before the termination date (10 days in the
case of nonpayment or during the first 60 days of a policy). Notice of
nonrenewal must occur at least 30 days prior to the policy expiration date.
The policyholder has the right to know the reason(s) for termination or
nonrenewal.
In fact, except in cases of nonpayment of premiums, termination is relatively
rare. Accordingly, we don’t recommend spending more than an extra $100
or $200 per year to have a company with a particularly good record of sticking
by its policyholders through a string of accidents or violations. And you
shouldn’t have to pay even that, since some of the lowest priced companies
get high ratings for their termination practices.
On the survey, we asked policyholders who had filed claims to rate their
companies on “not unreasonably cutting coverage.” You can see the results
on our
Ratings Tables. The table shows the percent of survey respondents
who rated each company “adequate” or “superior” on these questions. Those
who didn’t rate their companies “adequate” or “superior” rated them “inferior.”
Several companies were rated “inferior” by three percent or fewer of their
surveyed policyholders, but a few of the companies got such low ratings
from 10 percent or more.
Of course, termination by a company is not the only disruption you might
experience. If a company raises your rates dramatically in response to
an accident or violation or two, you may be faced with having to terminate
on your own, or take a big hit to your budget. On our customer survey,
we also asked consumers to rate companies on “not unreasonably raising
premiums.” That is the question on which most companies scored lowest.
There was big company-to-company variation, with several companies rated
“inferior” by more than 20 percent of their surveyed policyholders.
You will want also to be alert to news of a company’s financial instability.
You will not want to sign on with a company that may soon have to cut many
policyholders or raise prices sharply to stay alive. Nor do you want a
company that may go out of business soon, forcing you to begin your shopping
again.
On the other hand, there is no reason for great anxiety about insurer stability.
If a company goes bankrupt, policyholders may have to wait to recover money
owed them but generally are protected from major losses. A special “insolvency
guaranty fund” exists in every state to assess all insurers doing business
in the state on a pro rata basis to pay off outstanding claims of an insolvent
company and reimburse paid-in premiums. In California, the claims reimbursement
is subject to a $100 deductible and there is a $500,000 limit on claims.
Paid-in premium reimbursement is not subject to deductibles or limitations.
You can check on a company’s financial soundness using any of several sources:
You should be able to find copies of ratings from at least one of these
sources in the reference section of your local library. If you are unable
to find them, or if the ratings in your library are outdated, you can contact
the services directly. All four services will provide ratings over the
phone or on the Web, at no charge. On the Web, you can learn about the
specifics of the rating criteria each of these sources uses.
Some individuals—usually the young and those with a record of accidents
or violations—find it difficult to locate a company that will agree to
insure them.
The only answer if you are one of these “high-risk” individuals is to shop.
Try several of the major groups and ask that you be considered for their
“preferred,” “standard,” or “nonstandard” plans. Then try the special publicly
created insurance arrangement—the “assigned risk” plan for California,
which is the California Automobile Assigned Risk Program (CAARP). Under
this arrangement, drivers who are not eligible for even nonstandard rates
with insurance companies are able to buy insurance. Eligible drivers must
apply with the help of an agent who is a Certified Producer with CAARP.
These individuals are then assigned to regular insurance companies. Each
company is assigned a pro rata share of policyholders according to its
share of business in the state, and the policyholder pays the same premium
no matter what company he or she is assigned to.
Don’t assume that because you have been turned down by one “preferred”
company you must turn to a high-risk company or the assigned risk plan.
Companies’ standards for accepting new policyholders vary widely and change
from day to day as their rates and volume of business change. To enhance
your chances, remind an agent that you or members of your family have other
business with a company—for instance, a homeowner’s policy or automobile
policies for other drivers. On the other hand, don’t stop shopping even
if you are accepted by a “preferred” company. Sometimes the high-risk companies
or the assigned risk plan offer better rates. If you must join the assigned
risk plan at a very high price, try to get other coverage after a year.
In 1999, the state of California began a pilot program to help low-income
consumers get automobile insurance coverage. The California Low Cost Automobile
Insurance Program (LCA) is only available to “Good Drivers” who live in
Los Angeles County or San Francisco City or County and who meet other requirements
regarding income and the value of the insured vehicle. LCA provides only
10/20/3 liability coverage, but is considered to meet the state’s legal
minimum requirements. Optional coverage for medical payments and uninsured
motorist bodily injury is available; physical damage coverage is not available.
The program is administered by CAARP (see above) and eligible drivers must
apply through a Certified Producer. The pilot program is scheduled to end
in 2007.
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