Auto Insurance As It Should Be
Content
This is about auto insurance as it should be. Personal auto insurance is the biggest segment of the property and casualty insurance business but the basic product has not undergone significant change in more than 80 years. The auto insurance buying public has suffered terribly from a lack of product innovation, leaving it no objective means of comparison but price, and leading insurers to debilitating price wars. Auto insurance needs a shake up. My goal is to shake it up with better products. This is about insurance policies that meet the law and the needs of auto owners; policies that give the customer more choices and the insurer more control; policies that give the customer more protection for less money, while earning more money for the insurers that underwrite them. Tall notion? I think not. What I choose to call the CHOICE auto liability policy form is the result of years of effort aimed at getting better control of the true subjects of auto liability insurance. Those subjects are the drivers! Not to be trite, but cars don’t cause accidents, people do. Nevertheless, ever since making a critical error in 1936, the insurance industry has continued to use policy forms that attach liability insurance to cars and, by extension, to the owners of the cars. Nearly universal use of this policy architecture has led to establishment of a body of laws and regulations that has become too large for a frontal attack. If we could start over, from 1936,(and we can) we would probably design a policy that covers individuals for their liability arising from the operation of a vehicle, and includes a separate set of limits and terms for the vicarious liability derived from ownership of an automobile. The most expensive consequence of attaching liability insurance to a car instead of a driver has been diminished control over the operators of the vehicle. When the insurers first decided to attach liability to cars instead of people, they unwittingly gave future plaintiff’s attorneys a foot in the door. My goal has been and is to restore control over the subjects of the insurance. The challenge is to do so within the confines of existing law. CHOICE Auto Liability Insurance The CHOICE liability policy looks and sounds like “plain talk” auto policies, except for a major change in the way liability coverage is organized and a few unusual endorsement options. The CHOICE policy splits the liability section into three parts, each with its own insuring agreement and its own set of limits. Section 1a of the policy covers cars listed on the policy (and replacements) while being operated by listed drivers. Section 1b covers listed cars while being operated by unlisted drivers. Section 1c covers listed drivers while operating non-owned vehicles. This coverage has been optional under California Law. CHOICE offers Respondeat Superior coverage as an option. Respondeat Superior insurance provides that if a named insured is driving in the service of or on behalf of a third party at the time of the accident, his insurance will cover the party whom the driver was serving as an additional insured. CHOICE has a built-in provision for mandatory arbitration. The applicant can have that provision removed by payment of an additional premium.
CHOICE allows the applicant to reduce his premium by making a bi-fold promise. First he promises that he will not allow his car to be used by unlisted, unlicensed or intoxicated drivers. Second, he agrees that if the insurer is required to pay a claim under coverage 1b, he will reimburse the insurer for up to 15% of the coverage 1b, per person limit (usually 15% of 15,000, or $2,250) CHOICE Auto Physical Damage Insurance The CHOICE physical damage insurance policy utilizes Preferred Provider Organization provisions to enhance control over the shops used to effect autobody repairs. It also contains several policy language provisions that have proven useful in discouraging insurance fraud and at discouraging use of the vehicle by unforeseen operators. For example, CHOICE does NOT indemnify for loss sustained. Rather, it agrees to pay for repairs made and/or for total losses and for stolen vehicles or components. The rationale for this is that when economic times are hard and people have their backs against the wall, they will do whatever it takes to feed their families. An easy way to raise money is to rub the side of an older vehicle against a tree. This creates several thousand dollars in damages but leaves the insured with a perfectly sound, drivable vehicle. Variations on that theme have proven to be irresistible in difficult times. When repairs need to be made before a claim is paid, the lure of easy money mostly disappears. When unforeseen, unlicensed or intoxicated operators are driving the vehicle, the deductible is doubled. As a matter of interest, please note that each and every provision of the CHOICE program has already passed legal muster with California Regulatory Authorities. If it’s such a good idea, why hasn’t it been done before? 1) No one else is doing it, so there must be something wrong with the concept. This attitude is why new companies are born as old ones fade away. 2) Fear, Uncertainty & Doubt. No one wants to champion an untested idea that might fail in the marketplace. One risks being branded as careless, maybe reckless and his or her judgment is thereafter forever in question. 3) Not Invented Here Corporate egos are sometimes offended at the notion that all their resources, and all their best people, failed to see an opportunity that was apparent to someone with no apparent standing. 4) One inch jumping crickets. Jim, the long-time President of the insurance company that had the guts to back our idea visited us, a year or so after we had launched a highly unusual automobile physical damage insurance program that became startlingly successful. I was telling him how more than 200 insurers had rejected our idea. He opined that the problem we faced was a culture of “one inch jumping crickets”. We bit. He described a foot-square tray, one inch deep, full of crickets, and with a glass cover. Any time a cricket jumped more than an inch high, he banged his head. Quickly, the crickets learned not to jump. Jim compared this to corporate America, where more often than not, attempts to jump too high too fast are rudely discouraged. 5) Who gets the credit? In some, but certainly not all, corporate cultures, the little fish pass the good stuff up to the bigger fish, who in turn pass it along in sequence to the
biggest fish, who takes all the credit if the good stuff works, but passes blame back down the line if it does not. Sometimes, the process starts with a big fish who refers it to a handful of little fish for their blessing. The big fish takes credit, the little fish can only share blame. 6) You can recognize the pioneers by the arrows in their backs. This has been true often enough to have become an aphorism. But, the successful pioneers are legends. Some people seek security; others favor a calculated risk. 7) Companies Can Freely Copy Other’s Filings. This is the major reason why there is so little product innovation in the insurance industry. The biggest carriers are content to let the little ones blaze the trails, and you can’t blame them. My last filing was cloned (“me-too-ed”) five times in a period of about 18 months. Company A introduces a new idea; companies B-F pooh pooh the themes of the originator. After a year or two of watching resentfully as Company A succeeds, B through F copy A’s filing. This reality discourages innovation. The public would profit if new insurance programs, procedures, rating schemes and policy language were deemed to be off-limits to anyone but the originators for five years. This article is presented by Edward S. Beneville, Jr 874 Border Ave, PMB C-6 Joshua Tree, CA 92252 [email protected] 1-760-366-4670
CHOICE allows the applicant to reduce his premium by making a bi-fold promise. First he promises that he will not allow his car to be used by unlisted, unlicensed or intoxicated drivers. Second, he agrees that if the insurer is required to pay a claim under coverage 1b, he will reimburse the insurer for up to 15% of the coverage 1b, per person limit (usually 15% of 15,000, or $2,250) CHOICE Auto Physical Damage Insurance The CHOICE physical damage insurance policy utilizes Preferred Provider Organization provisions to enhance control over the shops used to effect autobody repairs. It also contains several policy language provisions that have proven useful in discouraging insurance fraud and at discouraging use of the vehicle by unforeseen operators. For example, CHOICE does NOT indemnify for loss sustained. Rather, it agrees to pay for repairs made and/or for total losses and for stolen vehicles or components. The rationale for this is that when economic times are hard and people have their backs against the wall, they will do whatever it takes to feed their families. An easy way to raise money is to rub the side of an older vehicle against a tree. This creates several thousand dollars in damages but leaves the insured with a perfectly sound, drivable vehicle. Variations on that theme have proven to be irresistible in difficult times. When repairs need to be made before a claim is paid, the lure of easy money mostly disappears. When unforeseen, unlicensed or intoxicated operators are driving the vehicle, the deductible is doubled. As a matter of interest, please note that each and every provision of the CHOICE program has already passed legal muster with California Regulatory Authorities. If it’s such a good idea, why hasn’t it been done before? 1) No one else is doing it, so there must be something wrong with the concept. This attitude is why new companies are born as old ones fade away. 2) Fear, Uncertainty & Doubt. No one wants to champion an untested idea that might fail in the marketplace. One risks being branded as careless, maybe reckless and his or her judgment is thereafter forever in question. 3) Not Invented Here Corporate egos are sometimes offended at the notion that all their resources, and all their best people, failed to see an opportunity that was apparent to someone with no apparent standing. 4) One inch jumping crickets. Jim, the long-time President of the insurance company that had the guts to back our idea visited us, a year or so after we had launched a highly unusual automobile physical damage insurance program that became startlingly successful. I was telling him how more than 200 insurers had rejected our idea. He opined that the problem we faced was a culture of “one inch jumping crickets”. We bit. He described a foot-square tray, one inch deep, full of crickets, and with a glass cover. Any time a cricket jumped more than an inch high, he banged his head. Quickly, the crickets learned not to jump. Jim compared this to corporate America, where more often than not, attempts to jump too high too fast are rudely discouraged. 5) Who gets the credit? In some, but certainly not all, corporate cultures, the little fish pass the good stuff up to the bigger fish, who in turn pass it along in sequence to the
biggest fish, who takes all the credit if the good stuff works, but passes blame back down the line if it does not. Sometimes, the process starts with a big fish who refers it to a handful of little fish for their blessing. The big fish takes credit, the little fish can only share blame. 6) You can recognize the pioneers by the arrows in their backs. This has been true often enough to have become an aphorism. But, the successful pioneers are legends. Some people seek security; others favor a calculated risk. 7) Companies Can Freely Copy Other’s Filings. This is the major reason why there is so little product innovation in the insurance industry. The biggest carriers are content to let the little ones blaze the trails, and you can’t blame them. My last filing was cloned (“me-too-ed”) five times in a period of about 18 months. Company A introduces a new idea; companies B-F pooh pooh the themes of the originator. After a year or two of watching resentfully as Company A succeeds, B through F copy A’s filing. This reality discourages innovation. The public would profit if new insurance programs, procedures, rating schemes and policy language were deemed to be off-limits to anyone but the originators for five years. This article is presented by Edward S. Beneville, Jr 874 Border Ave, PMB C-6 Joshua Tree, CA 92252 [email protected] 1-760-366-4670
