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    Geoffrey Gordon

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    Wind Deductible vs. Hurricane vs. Named Storm Deductibles

    Posted by Geoffrey Gordon

    Thu, Aug 15, 2019 @ 09:40 AM


    You call the insurance company after a big nor'easter or hurricane, with a tree sitting on your house, and they tell you that you have a "wind deductible."  What's that?  

    It's a separate deductible from the one that applies to everything else to lower the cost of storms to insurance companies in wind-prone regions.  There are a few variations beyond just "wind," and we'll look at which are better (if your address demands that you have this provision).

    House damaged by tree-927040-edited.jpgWhen a storm hits, the distinction between Named Storm deductibles, Wind storm deductibles and Hurricane deductibles can become important, and can be worth thousands to tens of thousands of dollars. The distinction is particularly important if you live or own property in a coastal county in Massachusetts, such as Plymouth, Dukes, Barnstable, Bristol, Suffolk and Essex, because all are generally available and choosing the right one might make a huge difference in the cost to repair your home after a storm. 

    Here's how it works:  these deductibles are applied separately for a higher dollar amount than your standard deductible, known as “all other perils” (AOP) deductibles.  For example, if you have a $1,000 deductible for fire, theft and all other perils and you live on the coast, you may have a $2,000 or higher deductible for windstorm and hail losses.

    More common than dollar amounts however, wind deductibles are often expressed as a percentage of the coverage amount on your home. For example, a 1% wind deductible on a $300,000 home would be $3,000 and a 2% wind deductible would be $6,000.  A 5% wind deductible on a $700,000 home is $35,000!!  Here in coastal Massachusetts counties, 1%, 2% and 5% wind deductibles are common if your property is within 0-5 miles of the coast.  

    These deductibles are part of an effort by the insurance industry to limit their storm losses by having homeowners share more of the repair costs when the wind blows.  Informed property owners - that's you - can take steps to protect homes when especially vulnerable to wind damage.  After all, if you have a 5% deductible on half a million dollar house, you’ve got 25,000 good reasons to consider storm shutters, a generator, the highest quality shingles, fewer trees in the yard, and other protections. 

    If you have a wind deductible it normally will appear right on the "declarations" (first) page of your homeowner’s insurance policy.  Yup, it pays to look at your policy - and if you're reading this blog, you've probably seen this on your policy.   Different insurance companies use different metrics for these specific peril deductibles. The three most common approaches are:

    1. Windstorm deductibles (the broadest, meaning it will affect the most people)  
    2. Named Storm deductibles (common) and
    3. Hurricane deductibles. 

    The broadest of these three, meaning where it will apply to the most consumer claims, is a Windstorm deductible.  These deductibles apply whenever damage is caused by wind; these include not only hurricanes and other tropical storms but also winter nor'easters and summer thunderstorms.   Any kind of wind damage will prompt this higher exposure to the owner.

    The next category is Named Storm deductibles.  To illustrate, remember the notorious “no-name" storm?  Damage from that storm would not have been subject to a higher Named Storm deductible, but would have under a Wind deductible.  The regular, smaller AOP deductible would have been used for any damage caused by the no-name storm under a Named Storm deductible.    But damage from Hurricane Irene or Hurricane Sandy, or other named storms would have invoked the Wind and/or Named Storm deductible. 

    Finally, there are the most restrictive Hurricane deductibles.  Hurricane Sandy is a particularly good example of the distinction between Named Storm and Hurricane deductibles.  When Sandy made land fall in New Jersey she had been downgraded from a Category I hurricane to a tropical storm. Thus, the lower AOP deductible applied to folks with a Hurricane deductible. Hurricane deductibles have become less common due to the potential for political interference after the fact, as was evident with Sandy.  Some suggested that the downgrade of Hurricane Sandy was precisely announced to shield homeowners from the Hurricane deductible.   Good for consumers with that one event, but insurance carriers want to quantify risk precisely, and after the fact interference prompted changes for the next event.  Thus what were Hurricane deductibles have morphed into Named Storm deductibles in many coastal regions.

    Many considerations should factor in your choice of insurance companies for selecting homeowners and other property insurance.  But all else being equal, and given the option between Windstorm vs. Named Storm, choose Named Storm as it is more restrictive. Given the choice between Named Storm and Hurricane deductible, you should choose a Hurricane as it’s the least likely to be invoked.  

    For more information on the subject, check out our short but super-informative whiteboard video where we give cost examples of various deductible options near the coast.

    If you've just discovered you have a higher wind deductible than you are comfortable with, contact us at 800-649-3252We can also research better offers for you - just click the link below. 

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    Geoff Gordon

    Tags: insurance, homeowners, storm, deductible, wind, windstorm, Coastal, deductibles, named, all other perils, AOP

    Do insurance companies charge for “Not-at-fault” accidents?

    Posted by Geoffrey Gordon

    Thu, May 02, 2019 @ 10:50 AM

    Short answer is yes, most insurance companies do add a charge for accidents even when you are less than 50% at-fault. 

    Most national companies have included this as a risk factor for years.  When national insurance carriers came in to Massachusetts, they employed risk factors that improved their models, as long as they didn’t violate existing state regulations.   One prohibited risk factor is the use of credit scoring for pricing auto insurance.  Used in 49 other states, here credit cannot be used as a rating factor for your auto insurance costs.  But “Not-at-fault” accidents can be.

    Gordon Truck accident  claimThe practice of charging for not-at-fault accidents Is relatively new in Massachusetts for traditional Massachusetts-only carriers.  But models here have followed the national model more closely ever since ‘managed competition’ was introduced in 2009.  

    Why do they charge when I’m not at fault?

    “At-fault” in Massachusetts has been the metric where all you need was for the other driver to be 51% or more at fault, and you were good.   They get the points, and you don’t.   This is reflected in the “Standards-of-Fault,  a boiling down of nearly a century of traffic case law, to identify “If XYZ happens, then the driver is assumed to be more than 50% at-fault.”  These standards still matter when at-fault points are assigned, so they’re worth knowing.  What they fail to acknowledge adequately is ‘contributory negligence’.

    Contributory negligence acknowledges the reality that most accidents are not completely black and white.  More often we see 70-30, 60-40 or some other variation other than 100% - 0%, such as when someone hits your legally parked car.

    What role does subrogation play?   (What is Subrogation?)

    Subrogation is the process where, after the accident bills have been paid, the insurance company lawyers settle up.   For example, suppose I run a stop sign and hit your car.    You go to your insurance company; they pay the collision and your rental while your car is being fixed.  Once that claim is paid, your insurance company comes to my company and says, YOUR driver (meaning me) caused this accident where we paid collision and rental.  Here’s our bill.   If my company declines to pay, they go to court and a judge says, ‘Pay the bill’ to my carrier.   Since everybody knows this, they rarely go to court and resolve these issues based on known documented factors.    

    Let’s look at a more common example.  Suppose I come through a ‘yield’ sign; but it’s dusk and you don’t have your headlights on.    Assuming the same damage as in the previous example, my company could argue that you were 30% at fault for driving without headlights at dusk.  So they pay only 70% of the bill.   This process involves lots of dollars, so both sides take these negotiations seriously.   Some insurance companies do a better job than others.

    One of our carriers only makes a risk charge if the at-fault cost share is greater than $1,000.  We like this approach as it ignores smaller accidents especially when you contributed less to the accident.

    What can I do as a driver?

    Practice defensive driving.    If you’re in an accident, document it.  Get a picture of the other driver’s license and registration.  Take pictures of damage to both vehicles, and note the time (especially dusk or dawn), and road conditions.  Complete your operators report as quickly as possible so you remember details, and document them.  Imagine your insurance company subrogation advocate looking for reasons to pay the other carrier less. This might result in no effect on your future rates.

    Tags: car accidents, reducing risk, subrogation, contributory negligence, Not-at-fault, fault

    Home Safety Reminders for the Holidays

    Posted by Geoffrey Gordon

    Tue, Nov 20, 2018 @ 02:54 PM

    holiday luminaries pic 2018

    The holiday season is a busy time, and that busy-ness can make us unaware of dangers that lurk in plain sight. Here's a partial list of things to be mindful of in the season of lights and cold weather.  We've seen these conditions turn bad, and we want you to enjoy all this particular time of year offers.

    While electrical fires are less common today than they were before circuit breakers and GFI plugs, let's be reminded that electricity does generate heat. Thus:

    • Don't leave candles unattended. Melting wax is an accelerant, and every year over the holidays the local news has a story or two of a burned out home from forgotten candles left lit.
    • Turn off Christmas tree lights whenever you leave the house.
    • Don't pile too many lines into a single socket; overuse of a socket can generate too much heat.

    Fireplaces warm the room, and our hearts, but a friendly fire and a hostile fire are two very different things.  Our old house has seven working fireplaces, so these tips come from real experience:
    • Never vacuum ashes from a fireplace unless they are fully cold to the touch. If you've ever sucked up a single small spark into a vacuum you've seen how oxygen being blown through a bag of dust can turn that spark hot and hostile in seconds (and the smoke it emits smells really bad – this one from an early lifetime, memorable, fireplace experience).
    • When cleaning ashes, don't collect when warm to the touch, NEVER in a paper bag,and never leave them the house or garage. Store in a metal container and place it outside  (ashes spread over packed down snow improve footing, by the way).
    • If the fireplace does not have a safety door or fireplace screen to prevent sparks from escaping, stay close. Nothing like a burning log rolling out onto the floor turning friendly to hostile.

    We cook and bake a lot over the holidays. Checklist items from the kitchen include:

    • Is the oven off when you leave the house?
    • Are children around? Turn pot handles in and move knives safely out of reach. 
    • Are the kitchen smoke detectors operating properly? If battery operated, go ahead and change those batteries now.

    Finally, is your best friend during an emergency fire nearby and quickly located? We're talking about fire extinguishers here. Now is a good time to check the expiration date or pressure charge indicator.  A First Alert fire extinguisher is about $20 on Amazon or your local hardware store.

    Now go and enjoy the best of the season, be with friends and family, and be thankful for all we have.

    To discuss any of the above with respect to your own insurance program, please don't hesitate to call the Gordon Atlantic Insurance professionals toll free at 1-800-649-3252. Prefer to type versus talk? Use the form at the left of this blog.

     

    Tags: home safety, fires, Christmas tree lights, holiday safety, fireplace safety, oven safety, smoke detectors, candle safety

    2018 California Fires

    Posted by Geoffrey Gordon

    Tue, Nov 20, 2018 @ 02:25 PM

    The devastation in California has already taught us a few hard lessons. First, some statistics as of Tuesday, November 20th, 2018:

    • The Camp Fire has consumed over 150,000 acres and is now 70% contained. Over 12,620 residences have been destroyed and over 480 businesses have burned down. Loss of life is at 77.
    • The Woolsey Fire in southern California has burned over 96,000 acres and over 1,500 structures. Loss of life is at three.
    • Insured losses stand now at about $14 billion, and are expected to exceed 2017's record number (also $14 billion).
    • Many homes are inadequately insured, particularly as "demand surge" has driven up construction costs about 30% since the fire. Required code upgrades are often overlooked in calculating insurance values.

    CA Wildfire Pic_Firefighter 2018

    While these losses will affect earnings of large insurers like AIG and Chubb, analysts don't expect the fires to affect capital ratios significantly. This means their financial stability should remain secure.

    Given these losses are on the heels of the 2017 season, insurance costs will indeed rise in California and underwriting standards will become more stringent. We don't expect much effect on rates here in the northeast that are not already baked into reinsurance rates (the insurance that insurance companies buy).

    Local businesses in the affected regions won't fare well. Beyond loss of buildings there will be significant loss of inventory, lost income, and major labor disruptions. The areas affected will take time to rebuild and many people will simply move.

    California's utility company PG&E has been cited as the source of the Camp Fire. Their potential liability was cited as $20 billion in a recent report in BusinessInsurance; with a market value of $22 billion how that liability plays out will take time.

    The human displacement is similar to the Caribbean or southern or coastal United States after a major hurricane.  Among the commercial buildings destroyed was a hospital. When we hear on the news that people have lost everything, this can mean homes, personal effects and memorabilia, cars, jobs...and most tragically, loved ones.  

    If you are inclined to make a donation to help, there are several reputable organizations helping, including the American Red Cross and the Salvation Army.

    To discuss any of the above with respect to your own insurance program, please don't hesitate to call the Gordon Atlantic Insurance professionals toll free at 1-800-649-3252. Prefer to type versus talk? Use the form to the left of this blog.

     

     

    Tags: California fires, home loss, devastation, forest fire, life loss

    Halloween (the movie) & Minimizing Risk

    Posted by Geoffrey Gordon

    Thu, Oct 25, 2018 @ 05:09 PM

    Halloween Pumpkin Pic

    The latest remake of the 1978 original “Halloween” horror flick surprised a few people with its opening weekend sales of $77 million! This was more than double the formerly highest grossing “Halloween” movie ($26 million its opening weekend in 2007). Looking at these large dollar figures, it seems that people like to get scared more in a group (such as in a theatre) than at home. What’s the appeal? When things go wrong…when things get scary…there is comfort in numbers.

    Numbers provide a measure of predictability and certainty to a situation. On the other hand, unpredictability and uncertainty are at the core of risk, which causes us stress. With theatres under tremendous competition from streaming providers such as Netflix, Amazon and Hulu, the horror theme seems to be well positioned to scare a bunch of people together.

    In our homes, we can minimize uncertainty of seasonal changes by preparing our homes for cold weather beginning in the fall, and prompted by setting our clocks back. Here's a short list for a Saturday after Halloween:

    • Clean gutters (or hire a handyman for this)
    • close all sill cocks (outside water faucets) from inside (to prevent freezing)
    • inspect the chimney liner if you burn wood - let a chimney company do this)
    • change air filters for air based heat,
    • check around windows for any caulking needs

    Also, review the checkups we should do twice a year (when we put our clocks forward or back):

    • Check tags and location of fire extinguishers (can you locate a fire extinguisher right now?)
    • Change out the batteries on smoke and CO2 detectors
    • Has your family makeup changed such that a review of your family's disaster exit plan should be updated?

    There's also value in numbers, including the number of people at Gordon Atlantic standing behind your insurance, and who have experience with risk reduction, claims mitigation, and claims handling. Always let us know how we can reduce the cost of risk (uncertainty and unpredictability) in your world.

    Call to speak to a Gordon Atlantic Insurance professional by calling 1-800-649-3252. Prefer to type versus talk? Click below.

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    Tags: Halloween, risk, safety, seasonal, safety tips, minimizing risk, scary movie, uncertainty

    How does a Homeowners Policy cover water in a basement?

    Posted by Geoffrey Gordon

    Sun, Mar 04, 2018 @ 12:47 PM

    The homeowners policy is limited when you get water in your basement.  Flood insurance, if you have it, will provide some help but is often limited to mechanicals (e.g. heating system).  This article will provide some guidance on available coverages as well as what you can do to reduce damage if your basement gets really wet. 

    sump-pump.jpg

    Your basement is a concrete box stuck in the ground, often below the water table (especially after a big storm), that is designed to keep water out...but it doesn't always succeed.  Water pressure is relentless and often finds its way in, which is why many people who experience wet basements have a sump pump.   A good sump pump will extract water from the lowest point in your basement and pump it outside, away from the house.   But a sump pump doesn't work without power.

    Some homeowners policies have optional limited "sump pump failure" coverage for these circumstances.  Since this insurance is subject to adverse selection (meaning only the people who are especially exposed buy it), it is expensive and limited.  If you don't have sump pump failure coverage and you get water in your basement, your homeowners insurance will be extremely limited.

    flooded-basement.jpg

     

    How does Flood Insurance  from the NFIP handle flooded basements?

    In another example of underwriting against adverse selection (and flood insurance is another example of adverse selection where spread of risk is absent and risk cost is concentrated), NFIP policies do not provide insurance against any property below grade level except for mechanical systems like your heat.  And if your mechanical systems are indeed in your basement, below grade level, the NFIP will charge for this.

     

    What can a homeowner do, absent of insurance?

    Extracting the water from your basement should be your first priority

    1. A wet vac (wet vacuum), available at Home Depot, Lowe's, Walmart, and other big box stores, is a good household item able to safely extract water.  Wet vac what you can and open basement doors and windows to let the high humidity air escape.furniture-on-palette.jpg
    2. Put anything wooden on palettes, blocks of wood or concrete pads to prevent water from seeping into furniture or other property. 
    3. Professional remediation contractors have banks of high capacity fans to get water to evaporate and leave the building quickly.  Use any and all fans you have at your disposal once power is restored and turn up your heat to accelerate the process.

    Water is the enemy in any location that is subgrade.  Fans, wet vacs, squeegies, mops, and/or specialists...use whatever and whomever it takes to get the water up and out.

    To discuss your personal homeowners policy with an insurance professional at Gordon Atlantic Insurance call us at (800) 649-3252.  Prefer to type instead of talk?  Click below.

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    Tags: Water damage

    How does a Homeowners Policy Handle Tree Damage?

    Posted by Geoffrey Gordon

    Sun, Mar 04, 2018 @ 11:29 AM

    Tree damage to your home from big windstorms is absolutely covered under most homeowners policies. The policy covers having the tree removed; damage to the house; and any consequential damage to personal belongings (including damage from the rain that finds its way inside). This can get complicated with needs for cranes or other specialized equipment, roofers, and finish contractors...so getting in line early for these services is always a good step to take.  

    Tree damage that does not hit a structure is usually limited under most homeowners policies. When removal and cleanup are included, there is typically a $500 to $1,500 limit, and it may or may not be subject to your deductible. Contact us or your carrier's service center directly for your personal specifics.

    If a tree hits your home, take pictures and begin necessary repairs. When a tree penetrates a roof, or otherwise breaches the roof or walls, the opening can let water into the house causing additional damage.Don't wait to start on anything that you can safely do yourself, or through qualified service providers. Taking reasonable steps to prevent further damage is covered.   

    If you don't have a landscape contractor in mind who can cut up and clear away the tree debris in your yard, visit our service providers page. Be sure to keep in mind that the costs many of these providers charge goes up when there is a demand surge, such as the couple weeks immediately following a storm. If you're paying out of pocket, you can usually save a few dollars by waiting until after the initial demand is over. 

    To discuss your personal homeowners policy with an insurance professional at Gordon Atlantic Insurance, call us toll free at (800) 649-3252.  Prefer to type instead of talk?  Click below.

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    Tags: tree damage to home

    Get Road Rewards telematics for safer driving

    Posted by Geoffrey Gordon

    Fri, Mar 02, 2018 @ 03:52 PM

    Gordon Atlantic is always interested in promoting safer driving.  I beta tested a new telematics program ('telematics' is a fancy word for electronic monitoring of your driving) offered through our carrier Plymouth Rock.  With the program now launched, using the app earns points which users can redeem for discounts on Shell gasoline, free movie tickets and Starbucks gift cards.   But that's not the main reason I like it.  The main reason is that I have become a better driver.

    Here's how the program works:

    Road Rewards Pic.png

    Plymouth Rock Road Rewards measures your driving performance and provides a score measuring speed, acceleration, braking, cornering, and phone usage. The better you drive the higher your score...and the more points you earn.  It costs nothing to participate in the program, but you must be a Plymouth Rock Massachusetts customer and have access to a smartphone to earn rewards.

    At its launch, there are three existing partners:

    • Shell gas: where I could earn $1.00 a gallon off my next fill-up
    • Starbucks: where I can redeem points for coffee vouchers
    • Showcase Cinema tickets: where I can view the latest Oscar-nominated movie 

    As someone who isn't too fond of "Big Brother," I'm pleased to know that Plymouth Rock is not collecting sensitive personal information off this app, and there are data security measures in place to respect my privacy. My driving habits as measured by this app will also NOT be used relative to any automobile claim I might be involved in.  Further, my score will not be used to affect my premium, as telematics programs with other carriers do.  There's no downside!

    The Road Rewards app tracks through your smartphone and whatever vehicle that phone is in; having multiple vehicles won't affect your score.  You don't need to drive everyday, as scores only measure actual driving.  Data usage is minimal and you can have data uploaded only when connected to wifi in settings if you watch data usage. 

    Road Rewards Pic 2.jpg

    For parents: Imagine how this could impact your kids' driving habits. Have them download the app and remind them you'll be reviewing their score periodically... like whenever they ask for the keys!.  As the app recognizes phone use, such as answering a phone call or sending a text, you can see in the "Trips" section each trip in detail and where there are areas for improvement...such as not texting while driving, the most dangerous habit many kids seem to believe they are immune from.  

    It also utilizes GPS to track location in order to monitor trips and adherence to local speed limits; this is when I like the phone to verify if new drivers were where they said they were.  Parents: this app puts you in the back seat of the car...virtually.

    So here's the math: the safer you drive the better your score. The better your score the more points you earn.  It's that simple.

    Let me circle back to my earlier comment about the best part of this program.  Since using this app my driving has indeed changed. It has raised my awareness about phone usage (only on bluetooth now, never by hand) and no texting.  I slow down earlier for stopped traffic to avoid any hard braking and I pay closer attention to my speed.  This app has made me a safer driver, and I'm reminded of that every time I review the app's feedback and monitor my score.   

    AND I earn free coffee at Starbucks, free movies at Showcase Cinemas, and discounts on gas...that's pretty rewarding.

    Update: Mapfre (Commerce) is another carrier which has introduced a telematics program.  While their rewards are different, the net effect, better driving, parental monitoring, is the same.

    If you'd like to discuss your personal auto insurance with a Gordon Atlantic professional, and to see if Plymouth Rock and their Road Rewards program (of Mapfre's DriveAdvisor) might be a fit for you, call us at (800) 649-3252.  Prefer to type instead of talk?  Ask a question below or click for an obligation-free quote! 

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    What is premium fraud?  Or, is garaging location important for insurance?

    Posted by Geoffrey Gordon

    Wed, Sep 20, 2017 @ 09:57 AM

    Premium fraud refers to misstatements on an insurance application to reduce the cost of insurance.  When premium fraud is discovered by an insurance carrier, they may not pay a claim.

    We understand that everyone wants to reduce the cost of their insurance, but making intentional misstatements to manage the cost is risky, and defeats the purpose of the whole effort.

    Here's how it might play out, innocently:  Young adult from the suburbs gets a place in town with a friend or two, buys a car, then hears that insurance in the city is a lot more expensive.  "Just say you're still living at home!"   The problem is the "Just say..."

    Remember that an insurance policy is a contract. Parties enter into contracts with assumptions that relevant information is available prior to each party entering.  If one party (the insurance buyer) makes a "material misrepresentation" while entering the contract, the other party (the insurance company) has grounds for not having to be held to their obligations. (reminder / disclosure - we are not attorneys; do not construe this as legal advice or opinion). What does this mean for insurance?

    The most common occurrence of "material misrepresentation" in retail insurance is the scenario described above with the young adult - garaging location, or where your car spends the night.  Everyone knows that it costs more to insure the same car with the same driver in an urban environment like Boston than it costs in a suburban one. The difference is significant; up to twice as costly from Cape Cod, for example, to Boston.

    Here's the rub:  let's assume you are living in Boston and have a collision or comprehensive (vandalism, theft, or other non-moving damage) claim.   If the claim occurs in Boston, but the policy shows a less expensive garaging address, the insurance company will often investigate. After all, if they can show that the owner is living in the city, they might not have to pay the claim.

    Every insurance company has an investigation team, commonly called the SIU (Special Investigation Unit).  They are good at what they do, and with big data, their job is getting easier. Initial efforts may begin with a quick Google name search: we have seen reports where participants in athletic events, such as a road race, show their hometown as Boston. There are plenty of other publicly available places online providing clues or outright evidence of where you are living. Then the real investigation begins to prove premium fraud…. which may allow the insurance company to walk.

    If an insurance company can demonstrate the contract was entered into fraudulently, for example, by saying you live in the 'burbs when you live in town, their obligation is limited to provide compulsory coverage only: state minimum limits for property damage ($5,000), bodily injury, ($20,000/$40,000), and no collision or comprehensive coverage.  

    Providing false information to manage your insurance costs can be not only risky, but extremely counterproductive.

    There are plenty of other ways to reduce the cost of your insurance. Just give our office a call toll free at 800-649-3252 and we'll work with you to lower the cost of your insurance while making sure it will be there when you need it.  Prefer to type versus talk?  Click on the top left of this blog.

     

    Tags: Premium Fraud, Claim denial, False Garaging

    How payment habits affect your auto insurance costs

    Posted by Geoffrey Gordon

    Fri, Nov 04, 2016 @ 03:03 PM

    Most consumers are familiar with the fact that a less than perfect payment history will affect the interest rate on a loan, whether it be a car loan or home mortgage.  What fewer people understand is that credit history is also a strong predictor for automobile insurance losses. Credit is second only to driving history for insurance company actuaries, the number-crunchers who try to predict the most accurate rate for every driver. 

    Auto insurance costs are affected by credit in most states, but not Massachusetts, where the use of credit score in rating models is prohibited. However, companies understand the relationship, and use proxies: that is, other indicators of credit, independent of actual scores, that are permitted here.  Insurance bill payment history for example.

    At Gordon Atlantic we encourage people to pay up front, in full, if you can afford to.  Most carriers offer a paid-in-full discount, since it's one good measure of solid finances.  If taking the paid-in-full discount squeezes your cash flow, the next best alternative is electric billing, or Electronic Funds Transfer (EFT), where the monthly payment is withdrawn automatically from your bank account.  This approach also eliminates installment charges or finance charges on the remaining balance, and more importantly, reduces the chance of a late or missed payment.  

    Compare the total cost of these three options in the table below.  We included two late payments to show the additional impact of these costs (on renewal...wait for it).

    Builling options and payment credit-1.png

     The paid-in-full person paid 12% less than the person getting bills in the mail and missing two due dates.  But wait. It gets worse on the renewal.

    Recently I was speaking with underwriters and actuaries at one of our companies about rating algorithms.  One fellow remarked casually that a single late payment will increase the next renewal by about 4%, all other factors being equal.  A second late payment will bump the renewal by 9 to 10% and a third late payment by 15% or higher.  Payment history is typically reviewed for up to three years.   

    This next table shows the effect of the same policy, 'all else being equal,' on renewal, the following year.  With a couple late payments: see how the gap widens from the cost with EFT or paid-in-full.  At the end of year two the the person with two late payments per year is paying 25% more than the pay-in-full option.  It gets worse if the trend continues another year.

     Billing options and payment credits - REN.png

    If you still get a bill in the mail, and you think you have not left enough time to mail in a payment by the due date, pay by phone is an option with most companies.  Contact the company's billing department directly and arrange a pay by phone ahead of the due date.  (Billing contact for carriers we represent are here:  http://www.agordon.com/billpay


    CONCLUSION:

    Take control of your auto insurance costs by paying in full when you can, and paying electronically otherwise.  Your billing history matters.  A lot.  (By the way, it affects your homeowners costs even more directly).

     For more help with finding the best solutions for your personal needs, contact us any time.   

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    Tags: Credit score, credit in auto insurance

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