When you signed up for your auto insurance policy you signed up for the opportunity to make a claim any time that you were involved in an auto accident or any other event that caused damage to your vehicle. To make this process short and sweet we could easily say that the conversation is over and this is why you should file an auto insurance claim when you have the chance. However, this is not good enough for some people as the fear of rates going up keeps so many people from filing auto insurance claims. Beyond this, there are three other good reasons you should file an auto insurance claim listed below.
continue reading "Why File an Auto Insurance Claim?"

Noninsurance Transfer: a risk management technique by which the risk of loss is transferred to a person or organization that is not an insurer.

The transfer of risk to an insurer is the most common risk transfer you will see, but it is possible to transfer risk to someone else.  A noninsurance transfer is what happens in this situation, when a business decides to eliminate a practice or policy and transfer the risk to someone else.

For instance, say you own a pizza restaurant and your employees deliver the pizza for you and you pay insurance for their deliveries.  You decide this is too expensive and you decide to contract with an outside specialized delivery company that delivers for you and pays their own insurance.  You now pay for the service, eliminate the risk of liability or collision coverage and transfer your risk.

Retention: a risk management technique by which losses are retained by generating funds within the organization to pay for losses.

As you may know, insurance is basically the transferring of risk from an individual or business to the insurance company in exchange for a monthly premium.  There are several ways for the individual or company to reduce the premium amount and one way is by the practice of retention.

Retention is when the business or individual decides to assume a certain amount of the risk to reduce the amount they are to have covered.  For instance, say you decide to go with auto insurance liability limits of $50,000 for property damage instead of the most popular $100,000.  You are assuming a lower amount of coverage in exchange for a lower premium.

Business Risk: risk that is inherent in the operation of a particular organization, including the possibility of loss, no loss, or gain.

There are vast amounts of different types of insurance that are necessary to cover different risks throughout your life.  If you were to start a business you would have a substantial amount of business risk related to the operation of the organization including the possibility that you may or may not make a profit or loss.

Obviously, you can’t purchase insurance just for the sole purpose of guaranteeing a profit for your business, but you can protect yourself against unforeseen hardships.  For instance, your business is a grocery store and an employee slips and falls due to a wet floor.  If it is proven that your employees did everything possible to provide a safe environment then your risk in that situation could be covered by your business insurance.

Hazardous: risk from accidental loss, including the possibility of loss or no loss.

Hazardous events are what make insurance both so necessary and so expensive at the same time.  The definition of a hazardous event is something that was caused by accident with the possibility of there being a loss or no loss. 

Think of this with your auto insurance property damage liability coverage.  Your insurance company tells you that they will pay X amount of dollars if you have an accident that was your fault and was “accidental”.  They have no way of knowing for sure the possibility that you will have this loss, but they can make educated guesses.

Risk: the uncertainty about outcomes, some of which can be either negative or positive.

If you are simply trying to understand why insurance is necessary this is the most basic term that could help you do so.  Insurance, in its most basic terms, is the financial approach to handling risk and its possible effects.  The more financial risk you can transfer and share, the better off you will be.

For example, you believe that you will live for many years and you have a good job that will help your family prosper during your life.  If, however, something incredibly unfortunate should happen and you pass away, life insurance protects your family.  You always have the risk of dying, life insurance provides financial security.

Liability Loss: A claim for monetary damages because of an injury to another party or damage to another party’s property.

Any time that you have caused or are being accused of causing injury to another party or damage to their property you are at risk of having a liability loss claimed against you.  This is not as bad as it may sound as liability insurance is among the most common and useful insurance coverages on the market today.

A liability loss can be as simple as that you backed into your neighbor’s mailbox and caused damage to the mailbox or other property.  Since a stationary object cannot be responsible for hitting something else you will easily be at fault for the accident and your auto insurance company will have to suffer the loss.

Liability Loss Exposure: any condition or situation that presents the possibility of a claim alleging legal responsibility of a person or business for injury or damage suffered by another party.

A liability loss exposure is what your auto insurance or homeowners insurance company will use to quantify your risk as an insured customer.  The more liability loss exposures that you have the more you will have to pay in premiums to keep your insurance policy in force.

If you have a history of auto accidents or people being injured on your property then you will likely have more liability loss exposures attached to your name.  This is not a type of loss exposure that you want to have a lot of as liability insurance is the most costly and has the biggest effect on your premium.

Net Income Loss: an indirect loss caused by a reduction in revenue, an increase in expenses, or both during a given time period.

Once you have been able to determine your net income, you can then determine your net income loss for a given period by doing more addition or subtraction.  This is the exact process that your insurance company will go through in order to determine their own operating system and budgeting practices.

With your net income that you already figured before you can keep track every month of your possible increases in expenses or reductions in income.  If both of these apply you will most certainly know it and you probably knew it already anyway.  Knowing your net income loss can help you plan to more effectively approach your net income in the future.

Net Income: revenue minus expenses and taxes during a given time period.

All insurance companies, like most companies, must keep good records of the income that is produced by the company to budget and profit well.  When determining your business income or your personal income you need to determine what your actual net income is for you and your family.

The process is quite simple and you can do it by adding up all of the income that you and your spouse make in a given month or year.  Now subtract all of your expenses or bills and then subtract the taxes you do or will owe to the federal government.  What you are left with is your net income, meaning you can start a solid budget or planning stage for your family.

Personal Property: all tangible or intangible property that is not real property.

Personal property coverage on your insurance policy will cover the property that you own inside your home that is not the actual structure or structures on it.  This could be things of material value or things of emotional or sentimental value, as long as you own it and, in most cases, can prove that you own or owned it.

In order to protect yourself against the loss of your personal property without it being reimbursed by your insurance company you should keep good records of your home.  Take video of your personal possessions and write down the serial numbers of your major material investments and keep them in a safe place away from the home.  This will only help when making a claim with your homeowners insurance.

Real Property: land, buildings and other structures attached to the land or embedded in it.

When you sign up for homeowners insurance to protect the investment that you have made in your home you get two different types of coverage on your policy.  One covers the actual structures on your land and the land itself, meaning the structure of the home and your lawn or driveway attached to it.

The other type of coverage on your homeowners policy will cover the property that you own that is not a structure or land itself.  This type of coverage is called personal property and will be covered in the next definition.

Property Loss Exposure: any condition or situation that presents the possibility that a property loss will happen.

As you have already learned about auto insurance companies, property insurance companies use the same principles to gauge how much an individual’s premiums should be.  A property loss exposure could be the lack of an alarm system on the home, the crime rate of the surrounding area or just the age of the home itself.

You must understand in order to understand insurance that the basic idea of insurance is to gauge the risk of insuring someone or something against the premium paid by the insured.  An insurance company must be able to gauge how much they can afford to pay against how much they can ask to charge their insured customers.

Exposure Units: A measure of the loss exposure assumed by the insurer, used in pricing insurance.

As you know from the definition of loss exposure, your auto insurance company will try to determine how much to charge you for insurance based on a set of criteria you have entered.  For every loss exposure assumed by your auto insurance company there is counted an exposure unit.  The more exposure units assumed the more the premium will go up for the insured.

Exposure units help an insurance company define why one individual may be more at risk to cause or be involved in an accident than another.  It is a tangible piece of evidence to provide to those that think the pricing of insurance is unfair and completely arbitrary.

Law of Large Numbers: a mathematical principle stating that as the number of similar but independent exposure units increases, the relative accuracy of predictions about future outcomes (losses) based on these exposure units also increases.

This is a mathematical principle that your auto insurance company uses to help them determine how many losses they may pay based on their clientele.  As you can see, the general theory is that the more people they have in like situations based on data gathered the more accurate they can predict the future outcomes of loss situations.

With this information your auto insurance company will try to decide just how many people they want from a certain loss exposure situation and how much they will charge those people.  This is one of the most fundamental parts of the auto insurance industry and will help anyone understand how the business works.

Loss Exposure: any condition or situation that presents the possibility of a loss.

This is the information that any type of insurance company relies on to make decisions based on your current situation.  For instance, an auto insurance company will take all of the information you have entered in your application and apply all of your data to a set of defined standards.  By storing information like your location and your home address they can define the likelihood of you being involved in a loss.

After considering information like your age and the type of car you are driving as well the insurance company will determine your loss exposures.  Based on how many loss exposures you have your insurance premium will go up or down, meaning more or less money out of your pocket.

Statistics show that automobile accidents are the number one cause of death for people between the ages of 15 and 20.  In fact, drivers between the age of 16 and 19 cause up to four times as many accidents as older drivers.  For these reasons, auto insurance companies don’t like to insure these drivers and therefore charge substantially more to protect the risk.  So, how do you get your teenager insured for a decent rate?

Try enrolling your son or daughter in a driver’s education course offered by a local government agency or school district.  For a very affordable rate you can get your child the kind of driving expertise that is needed to ensure they are driving and leading happy lives well into their senior years.  Of life, not high school!

There are any number of local businesses that will offer these driver’s education courses, but most of the time your child’s high school will offer the same.  It is beneficial to the school to have safe drivers as well to reduce liability and promote healthy driving habits in the lives of their students.

Don’t look at this as simply a way to save money on your auto insurance, instead, think of it as a way to guarantee that your child is driving the right way.  If your child is driving the right way, that means they are driving the safe way.

We all know that high school and college boil down to fashion shows and an arms race in material possessions in a lot of ways, but don’t let this affect your pocket book when it comes to your child’s car. Auto insurance companies will charge much more money to insure a truck or sports car because of the increased risk based on the drivers that typically drive these vehicles. In other words, nobody believes that someone who drives like a Grandma will buy a Miata.

Instead of getting mixed up in making sure that your child thinks they have a cool car or a popular car, ensure that they are driving a car that is generally viewed as safe and insurable. Nothing says safe like a nice four-door sedan such as a Ford Taurus or a Mercury Sable. These vehicles are generally driven for safe transportation only, not to race or prove how fast you can go.

Also, remember that the year of the vehicle can also affect how much the auto insurance company will charge you. If you are driving a 2009 Ford Focus then it will be charged more due to the fact that it is new and new parts will cost more. Whereas a 2001 Ford Focus may not cost as much to have parts replaced and the general value has gone down on the vehicle.

Another benefit to an older vehicle is that most banks won’t require you to carry comprehensive or collision coverage on a vehicle that is 10 years old or older. The reason being that this vehicle isn’t worth enough to pay for the coverage and would likely be totaled if a decent amount of damage was done to it. In turn, the insurance company doesn’t charge as much as there isn’t as much being covered.

Cash for Clunkers seemed to many like a program aimed at stimulating only one industry in our nation’s financial world.  Auto makers would get to sell more cars because people were getting rid of their old “clunkers”.  However, the recent spike in sales due to this program is also having a great effect on the auto insurance industry.

Think about the basics of it all.  These clunkers are all over ten years old and had very little worth.  In turn none of them likely had any more than the basic “liability” coverage on the vehicle.  Now, with more value to the vehicle and the new loan from the bank, collision coverage is required and then the consumer might add rental and medical, etc.

Also, consider that many people that had these vehicles that were turned in for the cash for clunkers program may not have used the vehicles at all.  They had determined they couldn’t get the right value and they just sat in the driveway, waiting for someone who wanted a deal.  Now, the trade in goes from no auto insurance at all, to a new full coverage policy for the insurance company.

In the end cash for clunkers is definitely having a greater effect on the actual auto makers, but the auto insurance industry could come out smelling like a rose as well!

JD Power and Associates rules the world in terms of business rankings and their ranking of auto insurance companies customer service is no different. USAA was ranked #1 by a long shot in the 2008 Poll, however their relationship with military members and families disqualified them. USAA would have had a score of 922 out of 1000.

Car insurers: Favorites of customers
Rank Insurance Company Overall Satisfaction Score
1 Erie 896
2 The Hartford 894
3 State Farm 893
4 Liberty Mutual 886
5 American Family 880
6 GEICO 876
7 Nationwide 875
8 MetLife 873
9 Automobile Club Group 867
Industry Average 867
10 Allstate 863
11 Esurance 860
12 Safeco 855
12 Travelers 855
14 Farmers 849
15 Progressive 844
16 AIG 840
17 Mercury 835

Source: J.D. Power & Associates

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