Car Insurance : Do you have the facts? Learning target: Students will understand and apply insurance data to making good decisions about insured driving. Car Insurance : Do you have the facts? Adapted by Dr. Vivian G. Baglien Auburn Mountainview High School 21st Century Skills: 2.C.1   Effectively analyze and evaluate evidence, arguments, claims and beliefs SL2 Integrate multiple sources of information presented in diverse formats and media (e.g., visually, quantitatively, orally) in order to make informed decisions and solve problems, evaluating the credibility and accuracy of each source and noting any discrepancies among the data. FCS 2.6 Demonstrate management of financial resources to meet the goals of individuals and families across the life span. FCS 2.6.1 Evaluate the need for personal and family financial planning.

Elements of a Contract Must be an agreement based upon a definite offer by one party and the acceptance of that offer by the other party The two parties must be legally competent to make a contract There must be a consideration; both parties must give something of value and both must receive something of value The contract must have a legal purpose

Insurance Indemnity Principle: legal doctrine stating that the function of insurance is to repay (indemnity) insured's for their actual losses Insurable interest: Insured (You) must be in position to sustain financial loss in the event involved in an accident Loss measurement: A way to determine the amount of payment when a loss occurs Car Insurance: Market value- loss usually repaid at value of vehicle at time of loss. 1st bullet) Policy holders who have adequate insurance protection should be restored to the financial position they held before the losses occurred, but they should not profit from the insurance. The intent is to avoid giving people an incentive to cause accidents Indemnity principle applies mostly to property-casualty insurance, more than in health and life insurance. It is supported by legal requirements or policy provisions Loss measurement: the traditional basis of loss measurement is the actual cash value of the property that has received damage. Most frequently the actual cash value equals the cost of replacing the damaged property minus an allowance for depreciation. In the specific case of car insurance, the actual cash value means the market value of a similar car. Example: If an insured’s two-year old Ford is destroyed, the basis for settling the claim will be the going price of a similar two0year old Ford. This way of measuring loss helps to prevent the insurance company from paying more than the car was worth. Subrogation: property owners can sue the person who caused damage to their property. If a suit is successful, the property owner is entitled to reimbursement by the negligent party. But if the property owner has an insurance policy covering damage to the property they are not permitted to receive claims from both the lawsuit and its insurance company, this would violate the indemnity principle.

Auto Accidents Casual factors in Fatal Auto Accidents Factor Percent of Cases Improper driving 75.9 Speed too fast 30.1 Right of way violation 14.1 Drove left of center 10.5 Other improper driving 21.2 No improper driving 24.1

Accident Facts The time with the most fatal accidents is weekend nights between midnight and 3am. Fires occurred in .1 percent of all accidents but in 3 percent of fatal accidents. People ages 16-20 had the highest fatality and injury rates in car accidents per 100,000 people. 39 percent of fatal crashes involved alcohol. Between midnight and 3 AM After 3AM the percentage rose to 76%.

Kinds and Amounts of Coverage Cost of insurance depends upon the kind and amounts that are purchased More coverage purchased and the higher the limits, the greater the cost Liability Limits Factor $25,000 1.00 $50,000 1.13 $100,000 1.22 $500,000 1.48 Liability Limit: is amount of insurance provided by the company, the maximum a company will pay for a loss. If a person has $25,000 limit of liability and are held responsible for $35,000 worth of damage, they are individually responsible for the $10,000 difference which the insurance fell short of Cost does not increase in the same proportion as the amount of insurance. Companies that use this table charge 13% more for $50,000 of coverage than for $25,000. The reason it does not increase proportionally to the liability limit is because most losses are small and are fully covered by a policy that has a low limit such as $25,000. Protection against large losses is important but since they don’t happen as frequently as smaller ones do the rates reflect the fact.

Premiums Classification System: a method of establishing the price of individual insurance policies by classifying policyholders in groups-each have similar characteristics Occupation Education Driving Distance to Work Miles Driven each year Years of driving experience Whether or not you currently have auto insurance and how high are your limits Theft protection devices (often results in discounts) Multiple cars and drivers (another opportunity for discounts) Age Gender Marital Status Geography Driving Violations Vehicle Type Accident Claims Credit Rating

Insurance Fraud Soft auto-insurance fraud: filing more than one claim for a single injury filing claims for injuries not related to an automobile accident misreporting wage losses due to injuries reporting higher costs for car repairs than those that were actually paid The Insurance Research Council estimated that in 1996, 21 to 36 percent of auto-insurance claims contained elements of suspected fraud. There is a wide variety of schemes which can differ greatly in complexity and severity. However, Soft fraud accounts for the majority of fraudulent auto-insurance claims Rate evasion: exmaple: some drivers in Brooklyn drive with Pennsylvania license plates because registering their car in a rural part of Pennsylvania will cost a lot less than registering it in Brooklyn Fronting: For example, parents might list themselves as the primary driver of their children's vehicles to avoid young driver premiums.

Hard Insurance Fraud Staging automobile collisions Filing claims when the claimant was not actually involved in the accident Submitting claims for medical treatments that were not received Inventing injuries Illegally register their car to a location that would net them cheaper insurance rates than where they actually live, sometimes called "rate evasion". “Fronting“: registering someone other than the real primary driver of a car as the primary driver of the car. Falsely report their vehicle as stolen

Bodily Injury Coverage : Bodily injury liability- for the risk of financial loss due to legal expenses, medical expenses and other expenses caused by an automobile accident for which you are responsible. Medical Payments – covers the cost of healthcare for people who are injured in your vehicle. Uninsured Motorists Protection- covers the cost of injury if you are hit by an uninsured driver.

Property Damage Coverage: Protect from financial loss due to damage of other people’s property or your vehicle. Property Damage Liability – protects from damage to other people’s property, street signs, lampposts, buildings etc. The last number in the Split Limit represents the property damage liability (100/200/50). Collision- covers the damages to a vehicle in case of an accident. However, if you are not at fault, the insurance might try to recover the money from the other insurance Company ( Subrogation). Comprehensive Physical Damage – Covers you for other risks such as wind, vandalism, fire , theft, falling objects etc.

Washington State Liability The auto insurance policy must have limits of at least: $25,000 of bodily injury or death of 1 person in any 1 accident. $50,000 of bodily injury or death of any 2 people in any 1 accident. $10,000 of injury to or destruction of property of others in any 1 accident. These are minimum rates.

Proof of Insurance – It’s the Law Showing proof of insurance: If stopped by law must have proof of insurance No Proof of insurance (traffic violation). Your proof-of-insurance card shows that either you or your vehicle are covered by liability insurance. Card sent by insurance company Not needed for motorcycles

Coverage Limit and Deductibles Your auto insurance coverage limit is the highest dollar amount an insurance company will pay if you make a claim on a covered loss (that's insurance-speak for any losses that fall within the bounds of your policy). The higher your coverage limit, the more the company pays, but the higher your premiums will be to obtain that coverage. Lowering your coverage limit is a good way to bring your premiums down and save money now, even if you may need to pay more out-of-pocket later, after an accident. The higher you set your coverage limit, the more protection you may have in the event of a covered accident. Setting a higher deductible amount can help keep your auto insurance premiums down. But a lower deductible (with higher premiums) means you'll pay less out-of-pocket when you make a claim.

Deductibles: Your deductible is the amount of money you agree to pay out-of-pocket (on your own) when you make a claim covered by your policy. This means, for example, that if your repairs cost $1,500 and you've set your deductible at $500, theoretically, you'll pay the first $500, and the company will pay the remaining $1,000 to get your car fixed and back on the road.

Auto Insurance Premium Factors Age -. Gender – Marital Status – Geography –. Vehicle Type –. Accident Claims – Driving record _ Age - Statistically, drivers under the age of 25 are at greater risk of being in an accident than those over age 25. Drivers between the ages of 50 and 65 generally have the safest records. Gender - Women are statistically safer drivers, but that trend is changing as more female drivers get on the road. young unmarried male drivers have more accidents and expect to pay more premium ( because they have more moving violations and license suspensions). Marital Status - A married person will pay less than a single person with an identical driving record. Geography – Also known as Rating Territory- different locations have different costs due to the number of claims reported every year. Cities such as Los Angeles and New York have higher rates. Vehicle Type – The year, make and model of the vehicle impacts the insurance costs. Expensive replacement parts and body repairs due to the body style may also increase the cost of insurance. Other car models such as Mercedes, Corvette have higher theft rates thus increasing the cost. Accident Claims – The number of claims that you file also affects the rate of premiums. Expensive liability settlements and extensive property damage increases the rate of premiums. Driving record _ If you have poor driving record, then the insurance company may cancel your policy. You therefore get the “assigned risk Pool” where you pay several times the regular rate until your driving record improves.

Auto Insurance Premium Factors Driving Violations -. Number of miles driven -. Coverage Discounts. Miles driven-. Credit Rating-. Occupation Driving Violations - The more driving violations you have , the higher the premium you pay. Number of miles driven - Drivers pay more when they put more miles on their car annually because it increases risk. Most auto insurance companies provide discounts for low mileage. Coverage - Auto insurance calculates premiums based on the number of coverages selected by the driver, deductibles, and payment limits. The more coverage, the greater the cost. However, drivers can elect to raise deductibles and lower payment limits which reduces the cost of the auto insurance. Discounts - Auto insurance provides discounts for car safety features including daytime running lights, airbags, and theft prevention systems. It also provides discounts for multi-car auto insurance policies, customer loyalty, and in some states, driver safety courses. Miles driven- Drivers pay more when they put more miles on their car annually because it increases risk. Most auto insurance companies provide discounts for low mileage. Credit Rating- Many insurance companies view having a poor, or even no credit history as suggestive of higher risk and thus, charge you a higher premium. A better credit score will save on insurance premiums. Occupation - Insurers have statistically found a correlation between your occupation and risk. For instance, a newspaper delivery person is most likely a higher risk than the personal banker sitting at their desk all day.

How do you reduce the Premium Discounts: Discounts for Safe Drivers: Defensive driver class discount Passive Restraint Systems Auto Safety features Good Student discount If you own a home, including condominium, town home, or mobile home, which is used as a principal residence, a discount could apply. If you are a military personnel either currently active or retired from any branch of the US military a discount could apply. If your vehicle is equipped with an anti-theft device, a discount could apply.

How do you reduce the Premium ? Multiple vehicles discount Deductibles – higher limits Have a policy with no lapse in it Safe Driver Record Good Student Discount Cover all insured property with one company- cars, house, boats, etc. Multiple vehicles discount. This will only apply if you have two or more drivers. - If you have a clean driving record, meaning you do not have any tickets, accidents or suspensions in the last three years (some companies require five years) then you could be eligible for a safe driver's discount. Deductibles - Buying a policy with higher deductibles will save you money. Have a policy with no lapse in it. Renewing on time and avoiding cancellations, due to lack of payment or otherwise, will help you because at renewal a discount may apply.

How do Claims affect Premiums? Auto claim premiums are affected by three main factors: ISO Symbols : To determine the cost of repair to a vehicle after an accident This service rates every vehicle produced in the USA and throughout the world with a symbol, called an “ISO symbol In general, the higher the vehicle cost, the more expensive to repair, and a higher policy premium cost required. Insurance companies look at this factor as a basis for the premiums you pay. Auto claim premiums are affected by three main factors: ISO Symbols : To determine the cost of repair to a vehicle after an accident, insurance companies and agents subscribe to a service provided by a company called “Insurance Services Offices, Inc.”, or “ISO”. This service rates every vehicle produced in the USA and throughout the world with a symbol, called an “ISO symbol”. The ISO symbol is built in as part of the insurance company’s computer rating system, (your insurance premium quote). In general, the higher the vehicle cost, the more expensive to repair, and a higher policy premium cost required. The higher the symbol number, the higher the insurance premium cost and the higher the parts cost, and for a body shop to repair.

How do Claims affect Premiums? Driving Record: Your premiums are based upon a rating system Almost all insurance company premiums are based upon an “allocation” type of rating system. This system is set up in order to allocate policy premiums fairly and is based upon several factors- How safe is you driving record? Costs more than just cost of your vehicle Based upon a driver’s statistical likelihood of creating claims Highly rewards safe drivers The salary and benefits of the claims adjuster is part of the cost. His vehicle cost is involved. The wages and benefits of the person who takes your telephone call to report the claim is involved. The cost of building and equipment required to provide offices for claims adjusters, and related personnel is involved.

References Allstate Insurance as retrieved October 3, 2012 http://www.allstate.com/auto-insurance/Washington-state-info.aspx Bertot, C. (1986)New financial planner a guide to client service. Homewood, Ill: Dow Jones-Irwin, Crane, F. (1980. Insurance principles and practices. New York: Wiley, "Factors that affect your car insurance premium." Car Insurance: Get an auto insurance quote, car insurance quotes and a fast online insurance policy. as retrieved Apr. , 26,2009 http://www.carinsurance.com/Articles/content6.aspx Kapoor, J. (1991)Personal finance. Homewood, IL: Irwin