MONEY Insurance

Why Even a Fair Insurance Claim Will Send Customers Packing

The insurance claims process is so painful and outdated that about half of customers who confront it bolt no matter what.

The financial services industry has been among the slowest to embrace the mobile and other technologies that many consumers crave. Within the industry, insurers probably have been slowest—and their old-fashioned ways are stirring a high level of churn.

Insurance customers are generally pleased with their provider. Only 14% of those who submitted a claim in the past two years are unhappy with how it was handled, according to a report from Accenture. As you might expect, a high rate of those—83%—plan to switch providers. But even among the vast majority who filed a claim and were satisfied, 41% say they are likely to switch insurers in the next 12 months, the report found.

Why would satisfied customers switch? In general, their claims experience, while satisfactory, left them feeling it should have been better. “The bar has been raised and insurers now need to handle claims in a way that not only satisfies policyholders but also differentiates them from other insurers,” says Michael Costonis, global head of claims services at Accenture, a research and consulting firm.

Technology exists that would greatly streamline the claims process, he says. Consumers understand that, and when they file a claim and confront the old way of doing things they resolve to look for something better. For example, Costonis says, in the case of an auto accident, sensors could summon assistance automatically, notify a garage, and get a tow truck on the scene—all without a phone call. Your car could be fixed and delivered to your door, and if any money was due to you it might be put in your account without the tedious paperwork.

Customers expect quick claims and fair pricing. But they also want transparency and this is where technology can make a big difference. “More and more, especially with younger customers, this takes the form of providing anywhere, anytime access online or through mobile apps,” Costonis says. In the study, 44% said they would switch providers to be able to use digital channels to monitor the claims process.

Broader use of technology could help in other ways too. Three in four customers are willing to share more personal information in order to get better rates, the study found. Insurers could easily gather information about the condition of cars and customer driving habits. They could also gather information collected by smoke, carbon monoxide, humidity, and motion detectors. Such data could help them help their customers manage risks and wind up filing fewer claims—and that is the Holy Grail because customers hate the process and insurers lose a high percentage of those who file a claim no matter what.

Related: How to make sure you have enough insurance coverage

MONEY Insurance

Why Millennials Resist Any Kind of Insurance

Young adults are the most underinsured generation of our time, which makes sense—up to a point.

Millennials are the most underinsured generation alive today—which makes a certain amount of sense. They have relatively few assets or dependents to protect. Still, the gaps in coverage are striking and offer further evidence that this generation has been unusually slow to launch.

Roughly one in four adults aged 18 to 29 do not have health insurance, twice the rate of all other adults, according to a survey from InsuranceQuotes.com, a financial website. (Other surveys have found lower uninsured rates, but this age group is still the most likely to go without.) Millennials are also far less likely to have auto, life, homeowners, renters, and disability coverage.

Young adults have always been slow to buy insurance. They often feel invincible when it comes to potential health or financial setbacks. But something additional appears to be at work here. This generation has famously overprotective parents who awarded them trophies just for showing up. Millennials may view moving back home or calling Mom and Dad for a bailout as their personal no-cost, all-purpose insurance plan.

Millions of young adults routinely boomerang home after college or get other family financial support. The trend is so broad that psychologists have given this new life phase a name: emerging adulthood, a period that lasts to age 28 or 30. MONEY explores this trend, and its costs, in the September issue reaching homes this week. Remarkably, the parents of boomerang kids don’t seem to mind providing the extended support.

A quarter of parents supporting an adult child say they have taken on additional debt; 13% have delayed a life event, such as taking a dream vacation; and 7% have delayed retirement, the National Endowment for Financial Education found. Yet 80% of such parents in a Bank of America Merrill Lynch survey say helping is “the right thing to do,” and 60% are willing to work longer, 40% to go back to work, and 36% to live with less if that’s what it takes to help their adult kids.

“Millennials have had very supportive parents throughout their life,” says Laura Adams, senior insurance analyst at InsuranceQuotes.com. “When you don’t have a fear of the unknown, a fear of life’s what-ifs, you are not likely to think about insurance.”

Yet young people overlook certain types of insurance at their peril—even though these policies may be relatively inexpensive. Most striking is how many skip health insurance, even though the Affordable Care Act mandates coverage and allows children up to age 26 to remain on a parent’s plan. Millions more young people now have health coverage as a result, recent studies have found, and their uninsured rate has dropped. But, still, as many as one in four still go without.

This may be classic pushback against a law young adults see as unfair. They understand that their insurance premiums subsidize the health benefits of older Americans who are far more likely to need care. Yet if Mom and Dad won’t pick up the bill, a visit to the ER can cost $1,000 or more for even a simple ailment. Things get much more expensive for broken bones and other treatments that even the young may need. Among other findings:

  • 64% of millennials have auto insurance, compared to 84% of older generations. Many millennials may have decided to skip car ownership. But if you rent a car or borrow one from your roommate, you have liability. It probably pays to have your own policy, which might cost $30 a month.
  • 10% of millennials have homeowners insurance, compared to more than half of those aged 30 to 49 and 75% of those 65 and older. Fewer millennials own a house, for sure. But this generation isn’t buying renters insurance either: only 12% have it. Renters insurance is cheap: $10 to $15 a month, and it comes in handy not only when someone steals your bike from the storage area but also if Fido bites a neighbor.
  • 13% of millennials have disability insurance, compared with 37% of those 30 to 49. This kind of coverage costs around $30 a month and may seem unnecessary. Yet one in three working adults will miss at least three months of work at least once in their life due to illness, Adams says, adding, “Anyone can throw out their back.”
  • 36% of millennials have life insurance, compared with 60% of those 30 to 49. Again, this coverage is relatively cheap: around $20 a month for $500,000 of term life. If you have no dependents you might skip it. But if you have debt that Mom and Dad co-signed, you should have enough coverage to retire the debt. It’s only fair, given your parents’ years of extended financial support.

 

 

MONEY Autos

The Least and Most Expensive States to Drive

Car driving into the Tetons, Wyoming
At least the scenery is great in the state where drivers tend to log in the most mileage on the road, Wyoming. Rolf Richardson—Alamy

Curiously, a state with low auto insurance premiums and fairly cheap gas is named the most expensive in the nation for operating a car.

Bankrate.com released the results of a new study about the least and most expensive states to own a vehicle, and a few of the places featured at the pricey end may seem particularly puzzling. Using state-by-state data concerning driver spending on car repairs, insurance, and gas gathered from CarMD.com, GasBuddy.com, the Bureau of Labor Statistics, and the National Association of Insurance Commissioners, Bankrate researchers found:

• The Midwest dominated the least expensive end of the cost spectrum, with Illinois, Ohio, and Iowa named the three cheapest states. All averaged under $2,000 annually for the trio of car operating costs included in the study, with Iowa the cheapest of all—$1,942, 13% below the national average ($2,233).

• Drivers in North Carolina, California, Washington, D.C., and New Jersey spend the most on repairs, all averaging $390 or more annually. New Jersey has the highest average of all at $393, which is 11% higher than the national average. A few hours north in Vermont, meanwhile, drivers average just $270 in annual repairs.

• Average car insurance premiums in Washington, D.C., New Jersey, and Louisiana top $1,200 per year, which is at least $500 more than a half-dozen other states in the country.

• Several of the top five most expensive states to operate a car may come as a surprise: Wyoming is the priciest overall ($2,705), followed by Louisiana ($2,555), Florida ($2,516), Mississipi ($2,487), and New Jersey ($2,421).

The reason that Wyoming is at the top of the list pretty much boils down to how much drivers pay for gasoline. It’s not even that the state’s gas prices are all that high—drivers in Alaska, Hawaii, New York, California, and Connecticut, among other places, routinely pay more per gallon than folks in Wyoming. Instead, Wyoming drivers pay more annually for gasoline because they tend to drive so much—68% more than the average American. The data used by Bankrate indicates that folks in Wyoming spent $1,588 on gasoline last year, and $1,643 the year before that. In the 2014 study, the state where drivers spent the second highest amount on gas was Alabama, with an average of $1,237. The average driver in Washington, D.C., meanwhile, spent an average of only $618 on gasoline in a year’s time.

Drivers in D.C. don’t get off so easily in other areas, however. The average car insurance policy there runs $1,273 annually, vastly more than premiums in Iowa, Ohio, Idaho, Wisconsin, Maine, and both of the Dakotas, which all average under $700.

What’s more, D.C. drivers are subjected to many costs that aren’t factored in to the Bankrate study, and that drivers in, say, Wyoming, rarely have to worry about. Like parking. A 2014 NerdWallet report about the worst 10 U.S. cities for parking featured Washington, D.C., for its typical costs ($19 per day, $270 per month) and the total amount collected in parking fines (around $100 million each year).

For that matter, the Bankrate study, limited as it is to just three data points, leaves out quite a few of the costs involved in owning a car. Like, you know, the actual cost of the car. Once the price of buying or leasing a vehicle is adding in, along with things like depreciation, maintenance, and gas, the average sedan costs $8,876, according to the latest AAA estimates.

And hey, owning a car in Wyoming is not necessarily as expensive as the Bankrate study makes it out to be. The average driver pays more there because he is on the road much more than his counterpart in Washington, D.C., New York, New Jersey, Nevada, and Pennsylvania, where the averages in annual gas expenditures are all under $800. To some extent, Wyoming drivers are victims of their state’s geography and development—stuff there is far away, what are you gonna do? But unlike in other states, where impossible-to-get-around high auto repair and insurance costs inflate overall driving expenses, at least people in Wyoming theoretically have the power to dramatically rein in the price of having a car, provided their work schedules and personal lives allow it. Just drive less.

MONEY Autos

WATCH: Hail Yes! Car Dealers Slash Prices on Storm-Damaged Vehicles

Severe hailstorms in the West and Midwest have one benefit for bargain-hunters: Discounts on damaged cars.

MONEY car insurance

Will Your Auto Insurer Punish You for Charging for a Lift?

140529_FF_NerdWallet_Lyft_1
A Lyft car in San Francisco courtesy of Lyft

In many places, you can pick up extra money by picking up passengers when you're on the road. But watch what that does to your insurance costs.

If you’re low on money and have a flexible schedule, signing on to be a ride-share driver for a company like Uber, Lyft, or Sidecar may seem like the perfect solution. You can connect with passengers via an app whenever you’d like and pick them up in your own car–becoming a player in the so-called sharing economy. By lowering barriers to entry, ride-sharing companies are cutting costs for both users and drivers.

They’re also throwing insurers for a loop. The ride-share industry’s rapid development has resulted in a dearth of adequate–and affordable–auto insurance products. Though Uber, Lyft, and Sidecar are trying to fill the gaps, there are still a few things you should know before driving for one of them.

What Coverage Do You Need?

Standard personal auto policies will cover drivers who carpool, but State Farm spokesperson Angie Rinock says, “when the driver of one of our insured vehicles offers rides for payment, these rides may not be considered to be on the same basis.” That is, although Rinock emphasizes that the company considers each claim individually, insurers often decline to cover damages drivers incur when ferrying around passengers for Uber, Lyft, or Sidecar.

To address this issue, ride-sharing companies routinely provide drivers with insurance–up to $1 million in coverage per accident. As Lauren Altmin, a representative for Uber, explains, “this policy drops down to primary coverage in the event that a driver’s personal auto insurance does not apply for any reason.” Still, this level of coverage is available only while you’re actively transporting passengers.

In response to last January’s deadly crash involving an Uber driver, Uber and Lyft now offer additional, lower-limit policies that apply any time a driver is logged into the app. Sidecar does not. For your own vehicle, Uber, Lyft, and Sidecar offer a combination of contingent collision and comprehensive policies, but typically with a deductible of $1,000 or more–and only if you’re giving a ride. If your car is stolen while you’re between passengers, you’re out of luck.

What Problems Could You Still Face?

None of these plans are much help if your personal insurance drops you, as has happened to some drivers. Few insurers are completely comfortable with ride-sharing programs. Rinock recommends that drivers pursue a purely commercial vehicle policy, but these can also present difficulties.

Adrian Anzaldua, a former Lyft operator in San Francisco, states that the only commercial policies he could find were prohibitively expensive: “I contacted the company through which I’d originally had a private policy. Their commercial department quoted me $8,000 a year for coverage. Most of the competing bids were in the same ballpark.” Premiums eventually forced Anzaldua out of the business.

What You Can Do to Protect Yourself

Short of a commercial policy, there are no perfect solutions for ride-sharing drivers at this point. That said, companies have beefed up their coverage in response to driver complaints. The between-ride, collision, and comprehensive policies are relatively new for Lyft and Uber, and because of them, Anzaldua adds, “I have referred friends to work for both.”

Lyft has also partnered with Metlife to improve its existing policies, and insurers like Progressive are researching programs to benefit ride-share operators. But in the meantime, you’ll have to navigate your own way between company and insurance regulations.

 

MONEY Insurance

5 Things to Know About Umbrella Insurance

Umbrella insurance covers you for liability risks you may not even have been aware of.

Even if you already have insurance for your home and car, you may not be adequately covered. This policy can help.

1. Without it, you could lose everything

If you cause a car accident and the other driver sues, your auto insurance covers you up to your personal-liability limit, which is likely between $100,000 and $300,000. Same goes for your homeowners insurance if the mailman slips on your steps.

An umbrella liability policy pays for settlements and legal fees above your limit. Without this insurance, your wages and assets are at stake (though in some states, retirement funds, pensions, and your home are excluded).

2. Liability risks are everywhere

“More than 80% of umbrella losses are auto-related,” says Ed Charlebois of Travelers Insurance. Even if you’re the safest driver, your teen probably isn’t.

Redoing your kitchen? Your general contractor may not adequately vet subcontractors for workers’ comp or liability.

Host a lot of parties? If a guest gets into a drunken-driving accident, the victim can come after you. Got a pool, hot tub, or boat? Employ a nanny or a housecleaner? Then you have risk factors.

3. You’re insuring against the worst-case scenario

The median jury award for vehicular accident liability cases is $21,000, found Jury Verdict Research. But the average is $306,000 — so some settlements are much, much higher. That’s why many financial planners say an umbrella policy is a must for those with significant net worth.

“Insurance is there to stop an accident from being a life-changing event financially,” says Redondo Beach, Calif., CFP Scott Leonard.

4. A lot of coverage costs very little

A typical homeowner with two cars can get a $1 million policy for $250 to $400 a year, reports the Insurance Information Institute.

“My rule of thumb is for clients to have coverage equal to one to two times their exposed net worth,” says Franklin, Mich., financial planner Bert Whitehead. (By “exposed,” he means assets vulnerable in your state.) That way you are not just shielding your money, but ensuring that the insurer will mount an aggressive defense.

5. You may need to juggle coverage first

Umbrella insurance usually requires specific liability limits on the policies it’s piggybacking — such as $300,000 per person on auto and $300,000 on home. So you may have to boost your coverage. Plus, some carriers extend an umbrella only over policies they have issued, says Jim Kuryak of Niagara National Insurance.

On the upside, bundling with one insurer can offset the added cost; it can shave as much as 20% off home and auto premiums.

MONEY car insurance

Auto Insurance: Downshift Coverage with Caution

Photo: Adam Voorhees

Downshifting your auto insurance premiums may leave you under protected. Watch out for these three holes in your policy.

You may have noticed an acceleration in your car insurance costs recently.

For the average driver, premiums are up 23% over five years vs. 7% for overall inflation. A 40-year-old man now typically pays $1,510 and up to $2,700, says Insure.com.

Perhaps you’re thinking that if you just drive down your limits a bit, or switch to another insurer, you’ll recoup some of the increase. Not so fast, Andretti: “You might save a few hundred bucks, but what will you cost yourself in protection?” says Mark Romano of the Consumer Federation of America.

Make sure cutting costs doesn’t cut coverage in these critical areas:

Liability

If you’re in an accident, the liability portion of your policy covers damages you cause to another car, as well as that party’s medical bills, lost wages, plus pain and suffering. States require $10,000 to $50,000 in coverage, but you probably need more with increasing medical costs and lawsuits. If the injured party’s bills top your limit, he can go after your assets, says Romano.

Meanwhile, as this is the most costly part of the policy, trimming coverage here may have seemed like easy savings. Or the agent who sold you the policy may have skimped to make the quote look competitive.

Protect yourself: Analyst Laura Adams of InsuranceQuotes.com suggests buying a value equal to your nonretirement savings, as that’s what would be at risk in a lawsuit. At the least, Romano advises, get $100,000 per person/$300,000 per incident.

“I’ve seen too many auto injury cases,” he says; “$100,000 for a settlement is nothing.” Rates are based on your risk as a driver.

Uninsured motorist

One in seven drivers is uninsured, the Insurance Research Council says. Additionally, 20% of insured drivers buy only the minimum liability required, reports data firm ISO. Uninsured and underinsured motorist coverage helps with your tab if one of these folks hits you.

Only 15 states mandate this coverage, however, and UM/UIM insurance is so confusing, says advocacy group United Policyholders, that many people underestimate their needs.

For one thing, in some states you buy the two pieces together; in others, they’re separate. Then there’s “set-off”: Say your family incurs $75,000 in damages in an accident. The at-fault driver has $25,000 of liability; you have $50,000 in UIM. You’re fully covered, right? Nope. In 27 set-off states, insurers subtract the other guy’s liability from your UIM. The remainder is the max you can collect, leaving you $25,000 short.

Protect yourself: UM/UIM limits of $100,000 per person and $300,000 per accident would cover expenses in all but 5% of accidents, according to ISO. However, if you live in a set-off state — your insurer can tell you — you may want higher limits to account for the other driver’s coverage being subtracted.

UM rates depend on the percentage of drivers who go bare. In Fort Lauderdale, Fla. — a state where a hefty 24% are uncovered — upping limits from $50,000 per person and $100,000 per accident to $100,000/$300,000 raises that part of the annual premium $68, to $340, says agent Susie Krix.

Repairs

You probably figure that if your car needed repairs, your policy would pay for new parts. Not necessarily. Insurers increasingly require body shops to use cheaper recycled or aftermarket parts. Consumer advocates warn that certain used or knockoff structural parts (such as bumpers) don’t perform as well as originals.

Trade group Property Casualty Insurers Association of America (PCI) counters that insurers don’t require shops to use aftermarket parts that would compromise safety — though, in January, the California Department of Insurance said an investigation found defective safety-related parts like hood latches being used.

PCI also says premiums would rise 2% if aftermarket parts were banned.

Protect yourself: Read the “limit of liability” section of your policy. Most insurers pay for new parts on cars up to a year old, some up to three years. A few don’t use aftermarket parts at all, says analyst Greg Horn of repair data firm Mitchell.

Yours does? Tell the body shop you prefer original parts; the insurer may approve it. Or see if your insurer sells a rider to extend the time factory-fresh parts are covered. This adds about 10% to the comprehensive and collision premium, but can save more if it prevents a return to the repair shop.

MONEY

Toyota Recall Shouldn’t Ding Your Car Insurance

I own a Toyota Camry. It happens to be a Camry Hybrid, which Toyota assures me is not part of the recall. I hope so, as I can’t stand the idea of one more errand to suck up my time.

Still, in trying to figure out whether my car was included in the recall, I got to thinking about whether – aside from “how quickly can I get my car to the dealer” – the Toyota recalls raised any other issues for consumers. Say, with auto insurance.

I talked to the Insurance Information Institute and several auto insurers and got answers to two of the most common questions they’ve been hearing:

  • I had an accident in a car covered by the recall. Will my insurer still pay my claim?

Yes. The Toyota recall will not affect your claim. “Vehicle recalls occur regularly,” says Allstate spokesman Mike Siemienas. “This is nothing new for us; it’s business as usual.” If the accident was tied to the faulty parts now in the news, it’s likely that auto insurers will pursue Toyota to pony up for the claim. In fact, insurers are reviewing previous claims involving the recalled vehicles to see if they might have claims against Toyota for past accidents. This “subrogration” process though is basically invisible to the policyholder. You probably won’t know it’s happening and there’s nothing you need to do. It’s even possible that you might get your deductible back, which is common when your insurer is able to recover money from a third party, says Jeanne Salvatore, spokeswoman for the Insurance Information Institute. But it’s too soon to know how many claims were tied to faulty parts, or what will happen as a result. Bottom line: No need to worry.

  • Will my rates go up because I drive a car covered by the recall?

It’s not clear and in any case it’s too soon to know. Insurers take a bunch of factors into account when they set rates — not just accident history but also criteria such as how often the car is stolen. It also depends on what ultimately happens with the recall. If Toyota successfully replaces all the parts in all the affected cars, then nothing may change at all. If rates did change, it would affect only the comprehensive and collision parts of your policy.

Meanwhile, for more information, go to Toyota’s recall page.

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