When did insurance become about price? If you look up the history of insurance, none of the reference material says it has to be cheap. If you think about the financial sector as a whole –banking and investments – none of them seem worried about pricing. Besides the talking baby, do you see any cartoon Charles Schwab’s characters running around? Are any of the horses in the Wells Fargo ads talking?
If the sole purpose of insurance is to cover claims and premiums supply reserves – why does it have to be inexpensive? Better yet, why does it have to mean less coverage?
When a company puts itself out there as ‘cheap’ doesn’t that hurt the character and the integrity of the company behind those sentiments? Where did it all go sideways?
The way it used to be …
Low premium, poor coverage
Let us talk coverage limits. The low cost insurer will offer the minimum limits straightaway. In states like Florida, insured’s can purchase a policy with bodily injury liability only. Minimum limits vary by state, but the majority are either $15,000 per person/$30,000 per accident/$5000 for property damage, 30,000 per person/$60,000 per accident/$10,000 property damage, or $25,000 per person/$50,000 per accident/$20,000 property damage.
Think about it, according to the National Highway Traffic Safety Administration https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/812246 there were a little over two million people who sustained injuries in motor vehicle accidents in 2014. These injuries include soft tissue (whiplash), chest, arm or leg injuries.
Will $30,000 cover an emergency room visit, a hospital visit, an orthopedic surgeon, wound care, or spinal surgery? Will $5000 or $10,000 cover a new car? The cheapest car – to buy new – is $13,000. Where is the remainder of that money coming from?
What are the options then? Sue the driver? Or, hey, how about that underinsured motorist? With the exception of Wisconsin, your uninsured/underinsured limits cannot be higher than the liability on the policy.
Thankfully, in Florida insureds can stack the uninsured/underinsured motorist coverage. So, if you have more than one car that just might cover that injury. Of course, you can also remove the underinsured and uninsured motorist coverage limits in Florida and Texas – just sign the prefilled form.
In fact the highest minimum limits out there are in Alaska and Maine which is 50,000 per person/100,000 per accident/25,000 property damage – even that doesn’t seem to be enough coverage.
The Call Center Model
The private automated business exchange, as they were originally known, made getting and maintaining insurance easy. Insured’s could call and purchase or service their policy.
Remember that 2% catastrophic rate that says only 2% of insureds really suffer a catastrophic loss. Keeping this in mind and passing this fun fact along, one could make the argument that lower limits are okay.
What insureds do not sign up for is the long hold/wait times, the transferring to this company or that, the representative who just got licensed yesterday giving complicated insurance advice, or the in-house phone adjuster who gets all the facts wrong.
At the end of the day, low cost insurance companies are state sanctioned sales machines put in place by insurance companies to accept the lowest risk possible. It makes the rest of us look bad.