Price Check

A boomerang kid lost his job and moved back home with his parents. While driving his mother’s car, he negligently struck another vehicle, causing several thousand dollars in property damage. The insurer denied the claim on the basis that the driver’s residency was not reported to the carrier within 30 days of his return home.

15 minutes can save you 15%, anyone?

The boomerang claim denial arose from an exclusion in the insurer’s policy for accidents involving undisclosed household residents, unless the insurer had been notified within 30 days of the residency. What insured would think to report something like this to his or her auto insurer? If an ISO standard policy had been in place, they wouldn’t have to.

At a rapidly accelerating rate via TV advertising, online “ease of use” promotion and proliferating media articles, consumers are being duped into believing that personal lines insurance is a commodity, with the only significant difference being price. Nothing could be further from the truth. While a lower price doesn’t necessarily imply lesser coverage, that is often the case.

In the words of sales legend Morty Seinfeld, “Cheap fabric and dim lighting. That’s how you move merchandise.”

The Myth Perpetuates

According to the 2014 Edleman Trust Barometer Survey, the most credible spokespeople for financial services companies are “experts.” This is disturbing, considering recently published studies by firms like McKinsey & Company, A.M. Best, Nomura Equity Research and Gartner proclaim that auto insurance is now officially a commodity. Some of their conclusions predict the demise of the insurance agent as the direct sales model wins the commodity war. Have any of these researchers ever read their own auto policies, much less compared the coverages in multiple policies?

They might have a point if personal lines actually was a commodity proposition. But that doesn’t stop the media from perpetuating this myth. The typical “How to Save Money on Car Insurance” article cautions consumers to make sure they compare “apples to apples.” Translation: Make sure you’re getting premium quotes for the same liability, uninsured motorist and medical payments limits and the same physical damage deductibles. It’s as if broad coverage categories, limits and deductibles were the only differences between auto insurance policies.

A Wall Street Journal article, “Car Insurance Rate Shopping Can Pay Off,” says, “The Consumer Federation recommends consumers shop around to get quotes from insurers that don’t use agents, such as Amica Mutual Insurance and USAA (for families with military ties), and then ask an agent to beat the best price.” Not a word about any coverage differences—only the price.

Pick Your Exclusion

A Florida insured’s auto was in the shop, so she rented a car and later loaned it to someone, who loaned it to someone else, who had an at-fault accident that killed a child and seriously injured other children. The claim against the operator and named insured was denied by the insurance company on the premise that the vehicle was not a “temporary substitute” and the operator was not a “permissive” user, as defined in this insurer’s personal auto policy.

The son of a friend of an agency owner was street racing when he crashed, seriously injuring himself and his passenger. The claim was denied by the insurance company based on their interpretation of their personal auto policy’s “racing” exclusion.

A church allowed a member to park his car in their heated “bus barn.” While exiting, he wrecked the car, causing structural damage to the building. The claim was denied by the insurer, citing the “care, custody or control” exclusion in the personal auto policy.

What do these claims have in common, other than denial from the insurance company? Each of them would have been covered if the policyholder had purchased an ISO standard personal auto policy rather than the policy in question.

With regard to the Florida claim, the ISO personal auto policy defines “temporary substitute” and “permissive use” much less restrictively than the policies above. The named insured might have saved 15% in 15 minutes when she purchased her auto policy, but it proved to be a bad deal when she had to take her claim to the Florida Supreme Court to recover. And in the Court’s reversal of the Court of Appeals ruling favorable to the insurer, the rationale for coverage was less about the policy language that appeared to support the insurer’s claim denial and more about Florida’s rather unique dangerous instrumentality doctrine.

In the street racing example, the ISO Personal Auto Policy excludes injury that arises from accidents that take place “inside a facility designed for racing,” while the auto policy in question excluded almost any racing activity, including one taking place on a public street. Fortunately, the father of the injured child had a Trusted Choice® independent agent to aggressively advocate on his behalf by pointing out to the insurer that the exclusion applies only to organized racing activities, not impromptu street racing. More than a dozen coverage opinions from the Big “I” Virtual University Ask an Expert service supported the agent’s efforts. Do you think someone who purchased insurance online from “a guy in khakis” would enjoy the same claim advocacy?

Like the ISO personal auto policy, the “bus barn” claim also involved a “care, custody or control” exclusion. But the ISO policy makes an exception for damage to a private garage. The policy in question has no such exception—not to mention the fact it’s unlikely that the barn was actually in the driver’s care, custody or control. So both the policy itself and the insurer’s interpretation of the exclusion were faulty from the insured’s perspective—rendering the carrier’s slogan, “same coverage, better value” untruthful.

The Real Story

The differences between auto insurance policies are many, varied and potentially catastrophic. As insurance educator John Eubank, CPCU, ARM, says, “The bitterness of no coverage is remembered long after the sweetness of low price has been forgotten.”

For decades, independent agents have seen a decline in personal lines market share. A primary reason is the all-consuming focus on price alone and now the erroneous premise that personal lines insurance has become a commodity, simply because someone says it is and people believe it.

It’s time for independent agents to dispel this destructive myth. This is not about market share. It’s about preventing catastrophic loss to innocent people who are sold a bill of goods via cute advertising of increasingly stripped-down insurance products that enable competitive pricing.

Arm yourself with information to educate your clients and bust the myth that insurance is a commodity.

Bill Wilson is Big “I” associate vice president of education and research and director of the Big “I” Virtual University.

SIDEBAR: Don’t Judge a Book…

Here are 12 auto insurance exclusions or limitations you won’t find in the ISO standard personal auto policy.

  1. Undisclosed household residents are excluded. How many of your insureds have “boomerang” kids living at home that you’re not aware of?
  2. Business use of non-owned autos is excluded. Have you ever borrowed a neighbor’s car or made a business stop in a dealer loaner auto?
  3. Business use of ANY auto is excluded. Do any agency employees ever run to Staples or the post office on agency business?
  4. Use of ANY non-owned auto is excluded. Better not drive anyone’s car but your own.
  5. Vehicles over 10,000 pounds in GVW are excluded. Have you ever rented a U-Haul truck or an RV thinking your liability coverage extended to the rental?
  6. Any type of delivery is excluded. Denied claims include pizza, newspapers, Mary Kay cosmetics and yes, even the delivery of insurance policies to customers by an agency producer.
  7. Permissive users only get minimum limits. This can apply to people who borrow your car or even unlisted household drivers.
  8. “Street racing” is excluded. Google “street racing” and see how often people are killed or critically injured in the process.
  9. Criminal acts are excluded or limits reduced. DUIs or even speeding tickets may preclude coverage.
  10. Medical payments only include licensed physician fees. One insured incurred a $25,000 “life flight” helicopter fee that would not be covered, even in part, by a policy with this exclusion.
  11. Theft without evidence of forced entry is excluded. One insured had a four-figure vehicle theft loss denied because he left his keys in the car.
  12. Sales tax is not covered under loss settlement. This cost one “same coverage” insured more than $2,000 out of pocket for sales tax on a replacement auto. —B.W.