If you are into Racing you may want to check this out

[telcoman]

http://www.nytimes.com/2008/10....html

Telcoman

[awdjdmtalon]

Every time I get a new sports car, my insurance company asks me. "Will this vechicle be used for racing for profitt." I always lol at them, and tell them, no, there is no profitt in racing.

I have never assumed that I was insured at the track.

[BrandAidDesignG35]

LOL, I guess I should've read the fine print...

I wonder if I'm covered, 1/4 mile is definately "timed" racing...

Thanks for the info

[marlin29311]

+1 for people not reading their insurance contracts.

Just a heads up to everyone - you SHOULD read your insurance contract that comes with your policy, both Home, Auto, and the like. It saves a lot of pain and aggrivation when you know that when an accident happens you know if its covered or not...

[Beancooker]

My auto insurance covers me all the way up to the staging lights. It covers me after I cross the traps, provided I don't wreck just after crossing the traps. Basically I am not covered while running the 1/4 mile, or if an accident occurs as a direct result of the 1/4 mile (ie. Blow out a tire just after the traps and roll the car... not covered. Sitting in the pit area, and some a$$ plows my car, I'm covered.) All the rest of the time spent at the track, I am covered. Funny enough, my health care insurance has the same limitations.

[Jacko3]

All I can say is that insurance companies are never in the business of paying out any money. They are far more profitable than banks. After oil companies and pharmaceutical companies, insurance companies are argueably the most profitable companies out there.

[marlin29311]

All I can say is that insurance companies are never in the business of paying out any money. They are far more profitable than banks. After oil companies and pharmaceutical companies, insurance companies are argueably the most profitable companies out there.

I must say as an insurance professional I take great offense to this statement. One of the largest problems is that people don't read what they are actually covered for - then a loss happens, that person submits a claim only to get denied for coverage that they thought they had, when they really didn't. When you have problems with insurance compaines paying out on claims, call the state insurance department and file a claim if you reallyl feel that coverage exists for the loss that occured. Insurances is a state and federal regulated industry - insurers cannot just get away with not paying anything.

Do some insurance compaines low-ball and try to scourge money? Probably. But don't blame the industry as a whole for the problems of the few.

Sorry for the rant, maybe it's because I work for an ethical insurance company that I get mad when people hate on my job.

[Tampa G35 Sedan 6MT]

Good to know

Thanks Telco

[C-Kwik]

I agree with Marlin on this one. I was an insurance adjuster for about 10 years in my last career. Most people end up upset about a lack of coverage because they assumed there was coverage. But its all there in black and white in the policy you read. There are some grey areas, but grey areas are typically decided in favor of an insured as a measure of good faith.

If you want to talk about how insurance companys try to screw you, I can just as easily bring up how much fraud occurs in insurance. And the largest portion of fraud dollars occur out of legitimate losses where one tries to get more than they deserve. This all costs us money as it comes out of our premiums. Then I'll talk about the attorneys. Not all are bad, but their job is to get as much as they can. Why? Because it lines their pockets with some 30% of the settlement amount. More often than not (in typical cases) they end up getting their client a net settlement that is less than or equal to what the insurance company would have given them without argument (The value of a case doesn't change because an attorney is involved). Many that get more than would be likely tend to have questionable documentation and cisrumstances (I don't know about you, but if I'm hurt, the first person I see about it is NOT my attorney, let alone one that my attorney refers me to). Again, this gets paid out of the premiums we pay. Wait, so who is greedy again? Its not such a one way street afterall, eh?

Add to this that an IDEAL insurance company will spend 98 cents of every dollar (essentially 2% direct profit). The reality is that almost all insurance companies spend more than they take in. The only reason they stay afloat and can manage to make a profit (sometimes they don't) is that they invest unused portions of premium dollars (ever notice mosty payment plans will try to pay off the premium a couple of months before the premium expires; gives them more money to invest earlier). And while one may argue that the amount is still high, consider that an insurance company needs to have some level of reserves to cover potential risks. A single catastrophe can put an insurance company out of business if money isn't managed well. Hell the Northridge Earthquake almost put a few under despite the fact that most people aren't covered for earthquakes.

Add to this equation that the primary factor for most people when choosing an insurance company is price, then it becomes that much worse. Nothing wrong with it, but if you consider that many exclusions and limitations are the factors that help to reduce premiums so they can be more price competetive. Point being, don't shop only based on price. While price is certainly important, consider what is and what is not covered by each policy. You can ask to see a review policy before signing up. I do.

[joe603]

Sorry but I have to agree with Jacko. Insurance companies, like any other business are there to make a profit. They do not profit if they have to pay out claims. I also believe that the industry as a whole is not out for the little guy. There may be a few companies that genuinely are...but not the majority.

Now with that said, unless you are a CEO or high upper management, please don't take offense to the comments, I have a few family members that work in the business too. (most of them agree with me)

And thanks for the heads up on the article!!!...I will NEVER ask my insurance company (USAA) about anything to do with racing.

[Tampa G35 Sedan 6MT]

They operate on a 2% profit

There is no way that they can only make 2% and be one of the most profitable industries out there.

I think that is the brain washed bull $hit that they teach you in training.

I have to be with jacko on this one! No insurance company has ever really helped me! they just cost me a lot of money.

I do say that if everyone didn't sue and if the lawyers would stay out of it... then the premiums would go down a lot!

DJ

[Jacko3]

Marlin and C-Kwik:

I am sorry if it appears I hated on your previous and current insurance industry companies. It wasn't intentional. Well, once upon a time, I called an insurance agent for some unrelated question, and while doing so, they asked me how many miles I drive each day. As stupid and as naive as I was, i gave them a figure without thinking, and lo and behold, my rates went up when it was time to renew my policy. I learnt never to give them the correct number of miles I drive----I give them less than 1000 miles per year.

I argued my case and was told that more driving means more risk. Not once did I read this sort of stuff anywhere in my policy. Till date, and this was over 2 years ago, my insurance policy does not come with an explanation to this effect. I have never made a single claim throughout my driving history until a few months ago when a pebble cracked my windshield. It cost $99 to fix. Will my insurance rate go up for this small claim against the many years of being a good driver? We can only wait and see what happens in January 2009 when I have to renew my premium.

I should not have to call my insurance commissioner to roll back the rates simply because i drove an extra 200 miles a year, whose implications were not clearly stated in my policy. Yes, I am risky by driving much longer in a year, but then, is it not common sense to match that against claims I may have made in the past, which turns out to be zero, while holding all other constants such as age, zip code, credit score, etc, constant? By my claims rising, it would suggest that the effect of the rise in mileage driven outweighed any effects due to being a risk-free driver with the same insurance company for years, which is quite bothersome.

The reason why I made my earlier comments is that the actuarial models and calculations used in determing our rates are prone to flaws and manipulations by the insurance industry, and thus, policy comments by the insurance companies are helpful but unsatisfactory in resolving claim issues. Even the Wallstreet Hedgefund managers and staff, who are sometimes called Quant guys, use models that have failed, especially in the current market crisis.

If the model is flawed, and if Insurance companies feel they are being unfairly attacked, then let them make their actuarial models open up to an extent for independent assessment, just as computer developers create open source programs. That way we know that they are transparent and fair. Though, i understand the business strategy implication of doing so, which could be a reason why they are unlikely to go that route.

Simply asking people to read their policies is not enough. So, in order to help their models produce more accurate rates, before renewing my policy, I will manipulate their computers to give me the best rates. Afterall, I am older, have an excellent credit score, and have made almost no claims through out my driving history. So, why should i have to pay such huge premiums? Its as if I am paying other people's premiums.

For now, my insurance rates are great for both cars. But I still deal with the insurance companies with three eyes open.

[marlin29311]

They operate on a 2% profit

There is no way that they can only make 2% and be one of the most profitable industries out there.

I think that is the brain washed bull $hit that they teach you in training.

Actually it's true - the State Farm's and Allstate's of the world underwrite their accounts to a 98% combined ratio (combined ratio is loss ratio and expense ratio combined). They don't operate on a 2% total profit, the operate on a 2% underwriting profit. The rest of the profit comes from investments, as C-Kwik alluded to, but you overlooked. Insurer's take the premium that the generate each year and invest it, which is how they can come out with better profits, provided they use good investments (aka they don't pull an AIG).

Next idea - I also want to clairfy and make sure people aren't confusing an insurance company and their insurance agent. The company writes your policy terms, conditions, etc, and the agent sells it. Agents receive commissions from the company for placing the business. You will never deal with the insurance company unless you have a claim. However, if you are with a direct writer (GEICO, Allstate, etc) then the insurance company is also your agent. This is just for clarification purposes.

Jacko - unfortuantly, more driving does present more risk - hence why your rates went up. This is based off of predictive modeling tools that all insurance compaines use, which stem out of the actuarial models - you won't find this in your policy because policies don't describe the rate and rule books used by insurers to determine their rates. A person that drives 5000 miles a year is going to be less at risk to getting into an accident than someone who drive 20000 miles per year, and the rates that are charged accordingly are all filed with the state you are in before they are allowed to be used to charge customers. The fact that the agent randomly asked you that is supect though, and I would change agents. Mostly it's the agents that are the D-bags of the world, looking to get more comission for what they do. The call to the comissioner would do nothing if you are looking for lower rates, simply because he/she approved the rates that you are being charged with. Calls to the insurance departement of the state are for when insurers are guilty of misconduct - ie, not paying claims, etc. The only real way to get lower rates is to try to find discounts in the system - packaged policiy credits (home and auto with same company) and the like.

Underwriting based off your claims is only done on a 3-5 year basis, and this is also regulated by the state. While you and I know that you are a good driver and don't bring any claims to cost money, legally you are only allowed to look at the past 3-5 years, or the "experience period" in order to determine your rates. You could be loss free for 20 years, but only the last 3-5 really count. Does it suck? Yup. But that's unfortuantly how the system works.

You're not paying someone else's premiums, you're paying their claims. The whole idea of insurance is to have the monies of many pay for the losses of few. An insurer has to write enough business to cover the losses that will happen to it, and based on the total book of business they have, that's where the rates come from. Don't forget you also get what you pay for - getting the cheapest insurance policy out there isn't always the best thing when it comes to when you have a loss.

Sorry but I have to agree with Jacko. Insurance companies, like any other business are there to make a profit. They do not profit if they have to pay out claims. I also believe that the industry as a whole is not out for the little guy. There may be a few companies that genuinely are...but not the majority.

The whole point of insurance is to pay claims - it is a financial safeguard built into our financial system to prevent people from going totally broke after a loss. Without insurance, the economy would cripple.

Yes, they are there to make a profit, just like any other publicly traded company. They make profit on paying claims because they underwrite their business, predicting the claims before they happen. Sometimes they get lucky, other times they do not. That's why some years insurance companies as a whole do well, and other years they tank.

Too much typing...I'll come back later if people want to talk more.

[C-Kwik]

Sorry but I have to agree with Jacko. Insurance companies, like any other business are there to make a profit. They do not profit if they have to pay out claims. I also believe that the industry as a whole is not out for the little guy. There may be a few companies that genuinely are...but not the majority.

THAT is why there is a contract (the policy), so there is little left to be questioned. And with the potential threat of a bad faith lawsuit, its far cheaper to decide any ambiguous coverage issues to the insured's favor. Not to mention the insurance industry is pretty heavily regulated. Sadly, in some cases, to the detriment of the consumers. In CA, any changes to a rate schedule must be approved by the department of insurance. That means, even a small drop in rates to be more competetively priced could cost millions as they require a substantial amount of documentation to complete such a filing to their satisfaction.

But try working in a claims department. As many stories you hear about people getting screwed over, there at least as many whewre people try to get uneasonable things out of insurance companies. It actually ends up being a better balance then you realize...

Not sure what the figure is now, but probably closer to 2000, every household pays about $200 annually towards insurance fraud. And were not talking about fake injuries and staged accidents. Most of the money paid to fraud claims is the guy who's TV was stolen from his home claiming to have a better TV than he had. Or padding that minor injury to a bigger one to try and get more money. Not to mention the amount of money spent fighting fraud.

They operate on a 2% profit

There is no way that they can only make 2% and be one of the most profitable industries out there.

I think that is the brain washed bull $hit that they teach you in training.

Not what I learned in training. Try looking at the financial statements. One company I worked for was operating at around 105% for some time. I didn't get my bonus that year or for about 5 years, for that matter. Bonuses were awarded based on the company's performance. Prior to the bonus drought we had, they hadn't missed a bonus for at least 10 years prior. It was the investing that kept them in business. And as an FYI, they got bought out earlier this year. They certainly weren't doing that well as that company had always been resolved to remain independent.

[C-Kwik]

Marlin and C-Kwik:

I am sorry if it appears I hated on your previous and current insurance industry companies. It wasn't intentional. Well, once upon a time, I called an insurance agent for some unrelated question, and while doing so, they asked me how many miles I drive each day. As stupid and as naive as I was, i gave them a figure without thinking, and lo and behold, my rates went up when it was time to renew my policy. I learnt never to give them the correct number of miles I drive----I give them less than 1000 miles per year.

Frankly, I don't care what you think of the insurance industry. I can only inform you of how things work and why things are the way they are and you can decide for yourself. But as far as your situation, additional mileage does pose a statistical risk. And you could be the safest driver in the world and that would still be true. Keep in mind that one of the risks an insurance company takes on with collision and comprehensive coverages is for situations where you are not at fault and there is noone they can recover money from (uninsured motorists, hit and run drivers, weather, etc.). There are two basic types of risk for a given driver. Static and dynamic (these are my terms, not necessarily insurance terms). Static risks are those that exist whether you are driving or not. This doesn't change much, but dynamic risks which are the ones present when driving do increase. These dynamic risks tend to be tied into a person's driving behavior, but just the mere fact that your driving on the road increases the chances that you'll hit someone or be hit.

I argued my case and was told that more driving means more risk. Not once did I read this sort of stuff anywhere in my policy. Till date, and this was over 2 years ago, my insurance policy does not come with an explanation to this effect. I have never made a single claim throughout my driving history until a few months ago when a pebble cracked my windshield. It cost $99 to fix. Will my insurance rate go up for this small claim against the many years of being a good driver? We can only wait and see what happens in January 2009 when I have to renew my premium.

Secondly, having no claims on your record has little relevance to your level of risk aside from its impact on your statistical chances of being involved in an accident based on all the factors your company weighs. The law of large numbers dictates with really good accuracy, how many people of a particular group will be involved in an accident as well as what the average cost of the losses will be. As for your glass claim, I can't speak for your state. In CA, in order for a rate to be increased as a result of a loss, the loss must be chargable. This means the insured must be at fault. And even then, in CA, that definition is further skewed by the fact that an accident is defined by a loss that exceeds $750 in property damage and/or has any injuries or fatalities involved. But so you know, I had a metal rod hit the hood and windshield of my G when I had it and a large panel off of an RV hit my hood on a 240sx. In both losses, my claims were paid and my premium remained unchanged...

I should not have to call my insurance commissioner to roll back the rates simply because i drove an extra 200 miles a year, whose implications were not clearly stated in my policy. Yes, I am risky by driving much longer in a year, but then, is it not common sense to match that against claims I may have made in the past, which turns out to be zero, while holding all other constants such as age, zip code, credit score, etc, constant? By my claims rising, it would suggest that the effect of the rise in mileage driven outweighed any effects due to being a risk-free driver with the same insurance company for years, which is quite bothersome.

I doubt a call to your insurance commissioner would change their decision as the risk hasn't changed. In fact, if they changed yours, they would have to change everyone else's as well. They would risk losing your business then arbitrarily lower everyone's rates...

The reason why I made my earlier comments is that the actuarial models and calculations used in determing our rates are prone to flaws and manipulations by the insurance industry, and thus, policy comments by the insurance companies are helpful but unsatisfactory in resolving claim issues. Even the Wallstreet Hedgefund managers and staff, who are sometimes called Quant guys, use models that have failed, especially in the current market crisis.

I'd speculate that actuarial models are quite deliberately designed. An insurance company makes money by spreading out risk. If they need a more of one type of driver to make them more profitable, then they will make it more enticing for such a driver to insure with them. Its not necessarily proportional to risk. Think of it as a way of avoiding putting all your eggs in one basket by creating a natural way of selecting your customer base. And those that don't fir their ideal customer and still buy a policy is still a win as they will likely be collecting more preium from them.

If the model is flawed, and if Insurance companies feel they are being unfairly attacked, then let them make their actuarial models open up to an extent for independent assessment, just as computer developers create open source programs. That way we know that they are transparent and fair. Though, i understand the business strategy implication of doing so, which could be a reason why they are unlikely to go that route.

No need. All you need to do as a consumer is shop around. Competition is heavy enough to self-regulate the costs of premiums.

Simply asking people to read their policies is not enough. So, in order to help their models produce more accurate rates, before renewing my policy, I will manipulate their computers to give me the best rates. Afterall, I am older, have an excellent credit score, and have made almost no claims through out my driving history. So, why should i have to pay such huge premiums? Its as if I am paying other people's premiums.

It is as far as a consumer is concerned. You need to know what you are paying for. A policy from one company can differ from a policy from another. So if one wants to buy a policy that covers them if they are driving on a non-timed lap around a race track, then that's what you look for. But the people who are most surprised by a denial in such a case is the person who assumed he's covered and is told he is not. He likely didn't read his policy. That said, if he compared policies and found one that covered him and while it might cost him extra, he determined it was worth it, then there would be no surprise. If he decided the additional protection wasn't worth the risk, then there will be no surprise simply because he knows what his coverage is.

As for manipulating the rates, keep in mind that you run a risk with that. Lying on an insurance application in such a manner to deliberatly manipulate the rates in your favor can be construed as material misrepresentation. Its a form of fraud, but an insurance company can generally save themselves a lot of money and hassle by rescinding the policy. Basically, they refund your policy dollars and say your policy never existed as they would not have insured you for the amount they charged had the correct info been provided. I've had to do this a number of times in cases where driver's in the household were not disclosed at the time of the application. It can be an EXPENSIVE lesson if the loss is large. And many were.

As for you paying other people's premiums, its not. Your paying for other people's losses. In order to understand it correctly, you have to break it down day by day. Divide your premium up by the amount of days in the policy period. This is your contribution on a daily basis to everyone else's losses and to the costs of administrating the claims. Statistically, its pretty accurate. Each day a premium is applied to the losses, your money is gone. So you don't build up credit over time to the possibility that you get into an accident. If you do get into an accident or suffer a covered loss, everyone else simply pays your loss out of that day's premium. Its obviously more complicated then that, but that should give you a general idea of how it works.

[Jacko3]

Frankly, I don't care what you think of the insurance industry. I can only inform you of how things work and why things are the way they are and you can decide for yourself. But as far as your situation, additional mileage does pose a statistical risk. And you could be the safest driver in the world and that would still be true. Keep in mind that one of the risks an insurance company takes on with collision and comprehensive coverages is for situations where you are not at fault and there is noone they can recover money from (uninsured motorists, hit and run drivers, weather, etc.). There are two basic types of risk for a given driver. Static and dynamic (these are my terms, not necessarily insurance terms). Static risks are those that exist whether you are driving or not. This doesn't change much, but dynamic risks which are the ones present when driving do increase. These dynamic risks tend to be tied into a person's driving behavior, but just the mere fact that your driving on the road increases the chances that you'll hit someone or be hit.

Secondly, having no claims on your record has little relevance to your level of risk aside from its impact on your statistical chances of being involved in an accident based on all the factors your company weighs. The law of large numbers dictates with really good accuracy, how many people of a particular group will be involved in an accident as well as what the average cost of the losses will be. As for your glass claim, I can't speak for your state. In CA, in order for a rate to be increased as a result of a loss, the loss must be chargable. This means the insured must be at fault. And even then, in CA, that definition is further skewed by the fact that an accident is defined by a loss that exceeds $750 in property damage and/or has any injuries or fatalities involved. But so you know, I had a metal rod hit the hood and windshield of my G when I had it and a large panel off of an RV hit my hood on a 240sx. In both losses, my claims were paid and my premium remained unchanged...

I doubt a call to your insurance commissioner would change their decision as the risk hasn't changed. In fact, if they changed yours, they would have to change everyone else's as well. They would risk losing your business then arbitrarily lower everyone's rates...

I'd speculate that actuarial models are quite deliberately designed. An insurance company makes money by spreading out risk. If they need a more of one type of driver to make them more profitable, then they will make it more enticing for such a driver to insure with them. Its not necessarily proportional to risk. Think of it as a way of avoiding putting all your eggs in one basket by creating a natural way of selecting your customer base. And those that don't fir their ideal customer and still buy a policy is still a win as they will likely be collecting more preium from them.

No need. All you need to do as a consumer is shop around. Competition is heavy enough to self-regulate the costs of premiums.

It is as far as a consumer is concerned. You need to know what you are paying for. A policy from one company can differ from a policy from another. So if one wants to buy a policy that covers them if they are driving on a non-timed lap around a race track, then that's what you look for. But the people who are most surprised by a denial in such a case is the person who assumed he's covered and is told he is not. He likely didn't read his policy. That said, if he compared policies and found one that covered him and while it might cost him extra, he determined it was worth it, then there would be no surprise. If he decided the additional protection wasn't worth the risk, then there will be no surprise simply because he knows what his coverage is.

As for manipulating the rates, keep in mind that you run a risk with that. Lying on an insurance application in such a manner to deliberatly manipulate the rates in your favor can be construed as material misrepresentation. Its a form of fraud, but an insurance company can generally save themselves a lot of money and hassle by rescinding the policy. Basically, they refund your policy dollars and say your policy never existed as they would not have insured you for the amount they charged had the correct info been provided. I've had to do this a number of times in cases where driver's in the household were not disclosed at the time of the application. It can be an EXPENSIVE lesson if the loss is large. And many were.

As for you paying other people's premiums, its not. Your paying for other people's losses. In order to understand it correctly, you have to break it down day by day. Divide your premium up by the amount of days in the policy period. This is your contribution on a daily basis to everyone else's losses and to the costs of administrating the claims. Statistically, its pretty accurate. Each day a premium is applied to the losses, your money is gone. So you don't build up credit over time to the possibility that you get into an accident. If you do get into an accident or suffer a covered loss, everyone else simply pays your loss out of that day's premium. Its obviously more complicated then that, but that should give you a general idea of how it works.

C-Kwik:

So, in essence, as I am already aware, insurance companies use statistical facts and not real facts to determine how much they charge for our premiums. Over time, as far as I am concerned, there is always a divergence between statistical facts and actual facts, if the variable remains consistent over time, when the variable in question starts to look like a data outlier . Statistical facts DO NOT reflect actual facts in some cases, especially when the data, which each of us represent to insurance companies, is an outlier. Apparently, the insurance companies make no distinction between statistical outliers in their data collection and analysis or make enough distinction to reward outliers who have been good and punish regular datasets who routinely engage in accidents. Another reason why i think their models are wrong. Outliers should be treated differently or removed from the data set and placed on rather better terms and insurance rates. Apparently, this is not the case with most insurance companies.

However, it would appear AllStates insurance is coming to this realization that socialization of risk and thus losses maybe a flawed model, as they are now moving towards rewarding outlier or reduced risk drivers or customers like myself with greater and greater benefits to retain their business or attract them in the first place.

While I agree with your conceptualization of static and dynamic risks, it is possible for a particular individual to maintain a certain level of consistent operation of their vehicle, and thus behavior, over time, enough to start transforming dynamic risks into static risks, which should cost less per incident. Either way, they are risks, and dynamic risks should not be priced in the same way as static risks, if you excuse my use of that conceptualization. This is where the actuarial modelling fails and this is where they are inconsistent, as they do not make such distinctions and when they do, if at all, consumers are unable to see the financial benefits.

If behavior (consistent or inconsistent) is modelled using credit card data, as the insurance company does, then driving consistentcy should also reflect a level of consistency or inconsistency in the individual since an irresponsible credit card user may probably be associated with being risky in behavior as is with an erratic accident prone driver or a driver who drives long distances.

In short that we own a credit card at all, is arguably equal in dynamic risk as driving everyday, simply because in each case, you use the item at random and without constraints. Your credit is prone to be stolen in equal measure as your car is prone to hitting other cars on the road. Yet, I get good rates for having excellent credit and bad rates for driving an extra 200 miles very carefully and without risk or accident, which one can equally consider a dynamic risk.

So, what if the individual constrains their credit card use and driving at the same, over time, and consistently, don't you think they will become a reduced risk customer? And how is this compensated? What both models (static and dynamic risks) actually do is try to predict behavior. Period! The insurance industry has decided that driving longer distances is a better predictor than the credit you use on the same stretch of distance you travel. So, this decision has been made for us as citizens because of flawed beleifs of the credit card industry.

So, how is driving more in a year more of a risk than being irresponsible with using credit or credit cards? I would argue that credit cards are a better predictor of behavior than driving. What i am saying here is that as much as the insurance companies would like to present their facts to make themselves the good guys, they are not entirely working in their own best interest or in the interest of others.

A good driver should not shoulder as much of the burden for everyone's loss simply because they are an outlier in the data set of consumers who ar einsurance risks. Period! I have never seen where statistics is used and outliers are not removed so that the data is not positively or negatively skewed. And I beleive when the statistical set so that the probability of the data for their inferential statistics turns up significant and irrefutable.

And that outlier data is simply everyday costumers who are reduced risk customers. But when it is time to apply the rates and premiums, the reduced risk customers are suddenly introduced into the model and are made to bear a disproportionate level of the insurance burden. So, how fair is that?

Oh, and by the way, no insurane company can prove that the variables they use in their modelling all have a direct cause and effect relationship simply because statistical facts can inly go as far as infer or predict. And if that inference is not fact, then how are they able to sell us insurance based on statistical facts and not actual fact? Well, they collude with state agencies and politicians to make things happen, don't they? Thats why they have resisted national regulations for so long---they think locally and act globally, when everyone else is thinking globally and acting locally. They are one of the few financial firms that is state regulated.

So, i strongly disagree with your comments about the accuracy of their models. I would rather say that their models are somewhat good predictors of data that clusters together and bad at predicting data that falls well outside that cluster--outliers. Having a poor credit is simply a predictor of driving behavior and not an actual predictor of what might happen in real life. Bad credit can come from a variety or reasons to include medical conditions or school tuition, which have no direct reflection on driving behavior. Yet, it used as a predictor of driving behavior, and accepted as fact. Why are the other reasons for bad credit such as medical reasons not factored into their models then, if they beleive they are fair? Again, another flawed reason for insurance actuarial models.



Modified by Jacko3 at 5:56 PM 10/21/2008
Modified by Jacko3 at 6:56 PM 10/21/2008

[marlin29311]

If behavior (consistent or inconsistent) is modelled using credit card data, as the insurance company does, then driving consistentcy should also reflect a level of consistency or inconsistency in the individual since an irresponsible credit card user may probably be associated with being risky in behavior as is with an erratic accident prone driver or a driver who drives long distances.

In short that we own a credit card at all, is arguably equal in dynamic risk as driving everyday, simply because in each case, you use the item at random and without constraints. Your credit is prone to be stolen in equal measure as your car is prone to hitting other cars on the road. Yet, I get good rates for having excellent credit and bad rates for driving an extra 200 miles when can equally be considered dynamic risks.

So, what if the individual constrains their credit card use and driving at the same, over time, and consistently, don't you think they will become a reduced risk customer? What both models (static and dynamic risks) actually do is try to predict behavior. Period! The insurance industry has decided that driving longer distances is a better predictor than the credit you use on the same stretch of distance you travel. So, this decision has been made for us as citizens becasue of flawed beleifs of the credit card industry.

So, how is driving more in a year more of a risk than being irresponsible with using credit or credit cards? I would argue that credit cards are a better predictor of behavior than driving. What i am saying here is that as much as the insurance companies would like to present their facts to make themselves the good guys, they are not entirely working in their own best interest or in the interest of others.

A good driver should not shoulder as much of the burden for everyone's loss simply because they are an outlier in the data set of consumers who ar einsurance risks. Period! I have never seen where statistics is used and outliers are not removed so that the data is not positively or negatively skewed. And I beleive when the statistical set so that the probability of the data for their inferential statistics turns up significant and irrefutable.

And that outlier data is simply everyday costumers who are reduced risk customers. But when it is time to apply the rates and premiums, the reduced risk customers are suddenly introduced into the model and are made to bear a disproportionate level of the insurance burden. So, how fair is that?

Oh, and by the way, no insurane company can prove that the variables they use in their modelling all have a direct cause and effect relationship simply because statistical facts can inly go as far as infer or predict. And if that inference is not fact, then how are they able to sell us insurance based on statistical facts and not actual fact? Well, they collude with state agencies and politicians to make things happen, don't they? Thats why they have resisted national regulations for so long---they think locally and act globally, when everyone else is thinking globally and acting locally. They are one of the few financial firms that is state regulated.

So, i strongly disagree with your comments about the accuracy of their models. I would rather say that their models are somewhat good predictors of data that clusters together and bad at predicting data that falls well outside that cluster--outliers. Having a poor credit is simply a predictor of driving behavior and not an actual predictor of what might happen in real life. Bad credit can come from a variety or reasons to include medical conditions or school tuition, which have no direct reflection on driving behavior. Yet, it used as a predictor of driving behavior, and accepted as fact. Why are the other reasons for bad credit such as medical reasons not factored into their models then, if they beleive they are fair? Again, another flawed reason for insurance actuarial models.

Ignorance is bliss, isn't it? I was ok with what you were saying up until you started talking about credit cards.

Your credit report and your credit cards are two different things. Does your credit report derive information from your card history? Yes, but that is a small chunk of it - not the whole picture.

Also - credit reports are not the main deriviatve of insurance - there are so many other criteria that go into factoring out your rates - age, sex, marital status, driving history, type of car, age of car, value of car, location of car, and i can go on and on and on...you cannot simply blame credit reports for high rates - note that it is illegal to use an credit score if a) the insured does not wish for it to be used and b) if the state does not allow it. Again, everything that is used has to be filed with the state - all insurance companies are highly regulated and sometimes it takes years for them to get rates approved.

Good drivers do share the burden - this is the insurance mechanism! If there were no lossless components in the insurance system, then insurance would be completly worthless, as you would only be taking on people that lose money! Insurers non-renew tons of policies every year, trying to drop the bad drivers, or otherwise they re-tier them into a worse rating class, jacking up their premiums. When someone presents an adverse exposure to the insurance company, they try to charge accordingly to it.

All insurance is based off of the law of large numbers; few will have losses, many will not. As I eluded to before, without insurance, the economy would fail horribly.

The reason that insurance is not federally regulated is because of the different type of exposures that occur in each state. I actually wish that more things were state mandated, as it would help with regulating the problems on a smaller scale, where they are fixable. When the federal government has to deal with things, they only look at the entire country. California has earthquakes, Illinois doesn't. Do you want to pay for earthquake insurance if you live in Illinois? Of course not, it's never going to happen to you! Should Montana be worried about hurricanes? No way! This is why insurance is regulated by the state - each state has unique exposures that need to be catered to on a smaller scale.

[Jacko3]

Ignorance is bliss, isn't it? I was ok with what you were saying up until you started talking about credit cards.

Your credit report and your credit cards are two different things. Does your credit report derive information from your card history? Yes, but that is a small chunk of it - not the whole picture.

Also - credit reports are not the main deriviatve of insurance - there are so many other criteria that go into factoring out your rates - age, sex, marital status, driving history, type of car, age of car, value of car, location of car, and i can go on and on and on...you cannot simply blame credit reports for high rates - note that it is illegal to use an credit score if a) the insured does not wish for it to be used and b) if the state does not allow it. Again, everything that is used has to be filed with the state - all insurance companies are highly regulated and sometimes it takes years for them to get rates approved.

Good drivers do share the burden - this is the insurance mechanism! If there were no lossless components in the insurance system, then insurance would be completly worthless, as you would only be taking on people that lose money! Insurers non-renew tons of policies every year, trying to drop the bad drivers, or otherwise they re-tier them into a worse rating class, jacking up their premiums. When someone presents an adverse exposure to the insurance company, they try to charge accordingly to it.

All insurance is based off of the law of large numbers; few will have losses, many will not. As I eluded to before, without insurance, the economy would fail horribly.

The reason that insurance is not federally regulated is because of the different type of exposures that occur in each state. I actually wish that more things were state mandated, as it would help with regulating the problems on a smaller scale, where they are fixable. When the federal government has to deal with things, they only look at the entire country. California has earthquakes, Illinois doesn't. Do you want to pay for earthquake insurance if you live in Illinois? Of course not, it's never going to happen to you! Should Montana be worried about hurricanes? No way! This is why insurance is regulated by the state - each state has unique exposures that need to be catered to on a smaller scale.

I only used credit reports simply as an example of one type of tool to assess risk becasue it is as dynamic a risk as driving extra miles in your car. Age, sex, ethnicity, can best be described as static risks--they don't change. By credit cards, please forgive me, i mean credit report. I am fully aware of other types of risks--read my first comment on this issue. Again, I am not convinced with your argument, not one bit. Secondly, I have not yet heard anything in all my adventures in statistics called law of numbers---I don't know where you got that from---perhaps you meant a large sample size. In fact, statistical data is most sensitive and more accurate with a large sample of numbers. See the difference? Why is transparency such a problem for insurance companies? What do they have to hide? Transparency breeds trust.

I also don't know where you get this fact that without insurance our economy will fail. It is like Henri Paulsosn saying that without supporting the Moral Hazards in the almost failed corporations that led into the mortgage crisis that the economy will fail. I think you are wrong on that account. I am a firm beleiver that markets have a way of correcting themselves, if allowed to their own devices. In the same vein, the failure of insurance companies WILL NOT cause a systemeic collapse, as creativity and appropriate shifting of resources will overcome such a potential of a possible catastrophic economic failure.

Well, again, you are wrong, a court (not sure if it is appeals court or supreme court) in 2006 gave insurance companies the power to use credit scores as a legitimate tool in assessing auto insurance risk, after some litigant sued Geico for using their credit score without their permission. Most people are not even aware this is happening. Priot to this, the insurance companies used ot write letters letting people know this was going on. Now, they don't even have to tell you any of this practice anymore.

And I disagree with your stance on using states to regulate insurance companies, when in fact, many of the strategic insurance practices and laws are generally litigated in federal courts, while individual policies are handles in state courts. It seems when insurance companies want to shaft consumers, they use state insurance commissions and agencies, and then when they want to gain the upper hand or defend their practices, they suddenly realize the federal system and courts will do their jobs/bidding for them. Remember that federal laws do trump state laws. So, what beter place to gain the upper hand on insurance matters than in federal courts, and what better place to practice their new found power than in disparate and discriminate ways from state to state.

Again, how fair are they in their practices and behavior? Can you prove that their models are not deliberately manipulated from state to state to take advantage of weak state laws and legislations, and even perhaps, varying degrees of corruption in these states?


Modified by Jacko3 at 6:59 PM 10/21/2008

[marlin29311]

This is the last thing i am posting in this thread - you apparently already have your mind made up about the insurance industry, and fighting an uphill battle online is just near impossible - this is a debate much more suited to live interaction.

It's not the "law of numbers," it's the "law of large numbers" - please quote correctly. A simple google search will yield 4.3 million hits for you to read about.

Every intro to insurance textbook usually starts out with saying that the economy would not function properly without insurance. I'll quote the first paragraph out of the one on my desk at work.

Personal Insurance is a subject that affects all of us - not only in our professional lives, but also in our personal lives. Without insurance, most of us could not buy our homes, finance our cars, pay our hospital and medical bills, or prepare for unexpected financial emergencies.

Insurance is the backbone of the society - if your home burns down and you don't have insurnace, you're out hundreds of thousands of dollars - subsequently, if you rent and your landlord doesn't have insurance, you're also out somewhere to live and a lot of money. You don't have money, you don't spend. You don't spend, business' are hurt. This happens to everyone, the system collapses.

Note that even the FTC says that having good credit can save you money - http://www.ftc.gov/bcp/edu/pub....shtm

Ethnicity is not used in insurance.

What do you mean by transparency?

Credit scores are used on a state by state basis - if a state says no, it comes out.

Can you provide me with some examples of insurance federal litigation?

If you're really upset with the insurance system that you're in, go with a mutual insurer, where you're not only a policy holder, you're a part owner in the company.

[Jacko3]

Marlin:

Anyway, lets enjoy our G-35s, insurance or no insurance---someone has got to pay out something to some corporation. You are a great sport.

Thanks for the info on mutual insurance policies. I have heard about them but never really cared to find out more on them. I think I will be focusing on them a little more. Thanks for the info.

[C-Kwik]

Statistical facts DO NOT reflect actual facts in some cases, especially when the data, which each of us represent to insurance companies, is an outlier. Apparently, the insurance companies make no distinction between statistical outliers in their data collection and analysis or make enough distinction to reward outliers who have been good and punish regular datasets who routinely engage in accidents.

No statistic can provide any data for each individual case. We could try and introduce every variable into an equation and all you would end up with is a huge headache. Outliers exists. I agree. But consider that they exist on both ends of the spectrum. There are some risks that are much heavier than they appear. These people get a break. Nothing in life is perfect. Noone is professing this to be true. But my argument was that by tha law of large numbers, if you took a group of peope that shared a particular profile, then over the course of time, their average claim cost could be accurately predicted (within reason).

If you are suggesting that rates become more individualized, then look no further than what insurance companies are trying to do with credit reports. They have done the research and found a strong correlation between a person's credit score and their risk as a driver. Fiscally responsible people do tend to display less risky driving behaviors. Of course, this is not a perfect metric either, but its another attempt to distribute the insurance premiums according to actual risks. But aside from easily obtainable records, consider that it would take an ongoing evaluation of a person's driving behavior to accurately gauge their risk. Do you care to have an on-board computer constantly transmit data to your insurance company to do so. Or perhaps have an employee follow you around to determine what kind of risk you present? And even if you allowed such a thing, the expense would be astounding. Expect that to show up in your premium. The system isn't ideal by any means. But it works efficiently and effectively.

I also don't know where you get this fact that without insurance our economy will fail.

Well, if insurance ceased to exist right now, the economy would likely fail. But thinking more in a big picture sense, the economy wouldn't be what it is today without insurance. Insurance makes it possible for people to take risks. While it makes it a bit harder to see in a personal view, consider the business view.

Let me start by explaining the history of insurance. Some of the earliest forms of insurance were actually bets placed on shipments on boats as to whether or not the goods would reach their destination or not. The shipper would basically bet against the goods reaching the destination so that if it does not, he wins the bet and he recoupes some of the money he lost in the goods. If the goods made it, he loses only a small amount compared to the large loss of all his goods. What this does is allow the shipper to take some additional risk in shipping his goods across the sea.

So how does this affect today's economy? Think about it. Businesses tend to run a lot of risks. SOme of them inherent of running a business, but others are due to the nature of the particular business. Drug companies would not try and come up with new medicines to treat people as the risk of being sued and losing a substantial amount of money would be high. Dorctors may not treat people for fear of being sued and having to pay out of pocket. Businesses might reconsider employing someone as work-related injuries would need to be paid out of pocket.

If you want to hit harder to home, you couldn't buy a house or a car unless you had all the money up front as no lender would loan you the money unless the collateral was insured. Hell, just owning a home would be risky for fear of something as small as a person tripping on your porch steps could get you sued. Noone would want to drive for fear of being sued.

Ufrotunately, most people see insurance as their premiums and their losses. But few will realize on their own that insurance makes many of the things in our lifestyle possible. Insurance encompasses more of your life then you realize.

And I disagree with your stance on using states to regulate insurance companies, when in fact, many of the strategic insurance practices and laws are generally litigated in federal courts, while individual policies are handles in state courts. It seems when insurance companies want to shaft consumers, they use state insurance commissions and agencies, and then when they want to gain the upper hand or defend their practices, they suddenly realize the federal system and courts will do their jobs/bidding for them. Remember that federal laws do trump state laws. So, what beter place to gain the upper hand on insurance matters than in federal courts, and what better place to practice their new found power than in disparate and discriminate ways from state to state.

Litigation of any case occurs in the appropriate courts. As for insurance commisioners and departments of insurance, generally, they tend to do more for the consumers. They are a regulatory agency and as such, they regulate insurance companies. Last I checked, they didn't regulate the consumers. Nor have I ever heard of a department of insurance asking for a case file from the consumer or even taking a complaint about a consumer from the insurance company.

Deapertments of insurance generally only make sure an insurance company follows the regulations that are put in place. Proper notifications and timelines are usually what they look for when they receive a claim file. They pretty much ignore the rest of the case as that is not there jurisdiction. That is where the courts come in.

Keep in mind that most court cases, whether its the trial for the accident itself because the plaintiff disagrees with what the insurance company is willing to pay them, or a matter of bad faith where the insured believed the company has handled their claim not in the insured's best interest, will be tried by a jury. That means the court itself is likely to be nothing more than a moderator.

Again, how fair are they in their practices and behavior? Can you prove that their models are not deliberately manipulated from state to state to take advantage of weak state laws and legislations, and even perhaps, varying degrees of corruption in these states?

To be sure, many companies are as fair as they can get away with. However, considering the regulations in place, there isn't a whole lot of wiggle room. But to be fair, let me throw your question back at you and ask if you can prove how unfair insurance companies are? I'd say you have the burden of proof here as a lack of evidence of corruption could be because there is none to begin with.

I'll end with this. If you truly think insurance companies are bad, then you might want to look at consumers as well. I've mentioned before that fraud costs consumers money. So don't simply judge an insurance company for your "high" premiums without knowing where some of your premium dollars are ending up. Here are some interesting statistics about insurance fraud:

http://www.dmdisney.com/fraud_stats.htm

http://www.insurancefraud.org/stats.htm

[snwbrdr435]

This thread needs more pictures and diagrams, to much text.

[C-Kwik]

This thread needs more pictures and diagrams, to much text.

Here you go:

[G_whizz]

This thread needs more pictures and diagrams, to much text.

When I first clicked on it I was "uunngghh I'm gonna have to read all this to make sure it's a civil discussion and not flaming"

Then I saw who the posters were.. Thank Gawd they're mature enough to keep it on topic and not flame.... PHEW cause just looking at it makes my head spin

[Jacko3]

No statistic can provide any data for each individual case. We could try and introduce every variable into an equation and all you would end up with is a huge headache. Outliers exists. I agree. But consider that they exist on both ends of the spectrum. There are some risks that are much heavier than they appear. These people get a break. Nothing in life is perfect. Noone is professing this to be true. But my argument was that by tha law of large numbers, if you took a group of peope that shared a particular profile, then over the course of time, their average claim cost could be accurately predicted (within reason).

If you are suggesting that rates become more individualized, then look no further than what insurance companies are trying to do with credit reports. They have done the research and found a strong correlation between a person's credit score and their risk as a driver. Fiscally responsible people do tend to display less risky driving behaviors. Of course, this is not a perfect metric either, but its another attempt to distribute the insurance premiums according to actual risks. But aside from easily obtainable records, consider that it would take an ongoing evaluation of a person's driving behavior to accurately gauge their risk. Do you care to have an on-board computer constantly transmit data to your insurance company to do so. Or perhaps have an employee follow you around to determine what kind of risk you present? And even if you allowed such a thing, the expense would be astounding. Expect that to show up in your premium. The system isn't ideal by any means. But it works efficiently and effectively.

Well, if insurance ceased to exist right now, the economy would likely fail. But thinking more in a big picture sense, the economy wouldn't be what it is today without insurance. Insurance makes it possible for people to take risks. While it makes it a bit harder to see in a personal view, consider the business view.

Let me start by explaining the history of insurance. Some of the earliest forms of insurance were actually bets placed on shipments on boats as to whether or not the goods would reach their destination or not. The shipper would basically bet against the goods reaching the destination so that if it does not, he wins the bet and he recoupes some of the money he lost in the goods. If the goods made it, he loses only a small amount compared to the large loss of all his goods. What this does is allow the shipper to take some additional risk in shipping his goods across the sea.

So how does this affect today's economy? Think about it. Businesses tend to run a lot of risks. SOme of them inherent of running a business, but others are due to the nature of the particular business. Drug companies would not try and come up with new medicines to treat people as the risk of being sued and losing a substantial amount of money would be high. Dorctors may not treat people for fear of being sued and having to pay out of pocket. Businesses might reconsider employing someone as work-related injuries would need to be paid out of pocket.

If you want to hit harder to home, you couldn't buy a house or a car unless you had all the money up front as no lender would loan you the money unless the collateral was insured. Hell, just owning a home would be risky for fear of something as small as a person tripping on your porch steps could get you sued. Noone would want to drive for fear of being sued.

Ufrotunately, most people see insurance as their premiums and their losses. But few will realize on their own that insurance makes many of the things in our lifestyle possible. Insurance encompasses more of your life then you realize.

Litigation of any case occurs in the appropriate courts. As for insurance commisioners and departments of insurance, generally, they tend to do more for the consumers. They are a regulatory agency and as such, they regulate insurance companies. Last I checked, they didn't regulate the consumers. Nor have I ever heard of a department of insurance asking for a case file from the consumer or even taking a complaint about a consumer from the insurance company.

Deapertments of insurance generally only make sure an insurance company follows the regulations that are put in place. Proper notifications and timelines are usually what they look for when they receive a claim file. They pretty much ignore the rest of the case as that is not there jurisdiction. That is where the courts come in.

Keep in mind that most court cases, whether its the trial for the accident itself because the plaintiff disagrees with what the insurance company is willing to pay them, or a matter of bad faith where the insured believed the company has handled their claim not in the insured's best interest, will be tried by a jury. That means the court itself is likely to be nothing more than a moderator.

To be sure, many companies are as fair as they can get away with. However, considering the regulations in place, there isn't a whole lot of wiggle room. But to be fair, let me throw your question back at you and ask if you can prove how unfair insurance companies are? I'd say you have the burden of proof here as a lack of evidence of corruption could be because there is none to begin with.

I'll end with this. If you truly think insurance companies are bad, then you might want to look at consumers as well. I've mentioned before that fraud costs consumers money. So don't simply judge an insurance company for your "high" premiums without knowing where some of your premium dollars are ending up. Here are some interesting statistics about insurance fraud:

http://www.dmdisney.com/fraud_stats.htm

http://www.insurancefraud.org/stats.htm

C-Kwik:

As always, well thought out write-up and very clear. I agree with much of what you have said. Thanks for the history on the beginnings of insurance companies.

I actually feel time has come for insurance companies to start collecting individualized date on each person rather than using statistical data. Heck, they already do so in some cases with the OBD II computers on our cars---they don't want to see the data on my OBD II computer. And by God, my rates will be the highest as Jacko drives like a mad man sometimes .

Well, I think I am happy with the way things are for now--i will keep being a responsible driver. As always, and as you also know me well enough now, I always enjoy a good debate and discussion. I feel it helps to enlighten all the good and wonderful people of NICO.

Nice job!