Auto Insurance Surcharges

I am curious as to your thoughts on the way we structure this in MA.

I had a minor accident in Somerville in August (I backed into the left front door of a parked car causing scratches and dents).  Insurance company first told me it would be $1600 to fix the other car, considered a “minor” accident, and I get hit with 3 points which works out over the years to — you guessed it — about $1600.

Now they say there was more damage found when they went to do the work, new total $3500, now it is a “major” accident and the surcharges over the years add up to around the same amount.

So if I am paying essentially the whole cost of the accident in surcharges, why am I paying premiums in the first place?  Plus, the charges sound ridiculously high to me — especially the $3500 — but I am not permitted to review the claim documents and have no standing to contest the claim because it is between the other guy and the insurance company.

I know I can appeal the  surcharge but that is more about fault in the driving than about the claims process.

The reason I’m raising the issue here is not so much my specific case, as the question of how the system works.  It is not really insurance if when you use it your premium goes up and covers the costs of the claim.  Plus the insurance company has little or no incentive to investigate claims if they know they will recover their losses via surcharges.  This seems broken, though I’m not sure how to fix it.

Frankly with an excellent overall driving record I don’t think I should be paying any surcharges at all for an accident like this.  It should be in the “oh that happens to everyone once in a while, that’s what insurance is for” category.  Why isn’t that how the system works??

It seems like we have skewed this system to (pick one — I’m not sure which it is):  (a) provide profits for the carriers, (b) address fraud problems thereby penalizing everyone for the actions of a few, or (c) attempt to enforce good driving habits by penalizing people for minor mistakes.   None of these seem like good goals to me.

I would rather see the system be true insurance — everyone pays in equally (perhaps with geographic adjustments) and everyone has equal access to make claims without penalty — and then have a provision that weeds out serious repeat offenders and those committing fraud.  It does not seem lile the system works that way right now.

2 replies on “Auto Insurance Surcharges”

  1. Where you say “pick one”, I suspect the answer is “all of the above.”

    We have one of the best grass roots insurance reform advocates in the United States living in Belmont, and I am going to ask him to comment in further depth on this.


  2. Tom –

    Sorry to hear about your accident, and the sizeable surcharge involved. It does ap-pear that there were no people injured in the event, and that’s a good thing. (Costs can escalate very quickly when bodily injury is involved.) I was hoping to reach you by phone to talk with you directly, but have been unsuccessful in trying to reach you.

    As for your access to the claims documents of your company, the chances are that somewhere in the paperwork for the purchase of your insurance policy is language re-serving to the company the sole right to those documents and the exclusion of access to them by the insured, you. You can appreciate that the company would like to have full control of any lawsuit in which its money is at stake.

    Despite appearances in your case, your premium increase is not automatically calcu-lated as equal to the cost to the company. By and large, the cost of your accident is spread out over all your company’s insureds. And the real benefit of insurance coverage applies to larger and more costly accidents. If you had been involved in a case costing the company $35,000 or more instead of $3500, you would undoubtedly be very happy to settle for an additional $3500 in premiums.

    Your comment about not paying surcharges in view of your excellent driving record raises some interesting possibilities. Now that we are moving toward more competition and less standardization in Massachusetts auto insurance, it is quite possible that your company might be able to deal with you more creatively either now or in the near fu-ture. One example of this is a so-called “accident forgiveness” feature that some com-panies offer. In all probability, you are driving even more carefully since your accident than before, both because of your awareness of how quickly and easily accidents can happen, and because of a concern lest your premium increase even more. It may very well be that certain companies have discovered that this tendency toward better driving after an accident – and especially a first accident — is sufficient to result in demonstra-bly safer (and therefore less costly to the companies) driving, which well merits no in-crease in premium. This is one benefit of our current move toward competition.

    (By the way, the phrase “accidents happen” is in itself a redundancy, as the word “accident” comes from the Latin “accidere” meaning “to happen”.)

    In answering your three questions, Will is pretty much right:
    a) Both companies (“carriers”) and agents (“producers”) work on a profit mo-tive, like any other businesses in our economic system. If there were no profits in-volved, then the companies and agents wouldn’t sell the stuff, and we wouldn’t have ac-cess to it.
    b) Fraud is very costly, especially to the honest insureds who end up paying for it, and measures are being taken to combat it. In 2003, following the tragic death of a Lawrence grandmother in a staged “accident”, a Community Insurance Fraud Initiative was established to combat automobile insurance fraud. It has reported that through its efforts as of 2008, premium savings of $500M have been realized by policy-holders in thirteen Massachusetts cities.
    c) Penalizing instances of bad driving is one way of motivating drivers to prac-tice better driving habits. Since good driving means fewer and/or smaller claims against them, companies look for ways to reward good driving and to penalize bad. There is a great deal of interest in Massachusetts these days in the issue of what factors to allow in determining premiums: whether to allow unrelated but apparently quite validly predic-tive factors such as credit rating, home ownership, education, occupation, etc., or to limit such factors to only those that the driver can control. The latter not only provides greater incentive to drive more carefully, but also allows the driver to feel more in con-trol of his premiums.

    It would seem that there are three basic alternatives you could explore:
    1) If you have a pretty decent relationship with your insurance agent, check with him/her to see if your present company, or any other company that he/she deals with, can help you out, especially in view of the comparatively “minor” size of your “major” accident and your past driving record. There might even be an accident forgiveness ar-rangement available to you, although he/she would probably have already mentioned it to you if there were.
    2) You might also want to consider shopping around. Now that we have less standardization in this move toward competition, you might find some other company (and/or agent) that could help you.
    3) And you always have an option of posting a bond in lieu of purchasing an insurance policy – see Chapter 90 Section 34A of our General Laws, available on the internet at “Massachusetts laws”. You would need to determine for yourself how much that will cost and how comfortable you would be with such an arrangement. (I don’t know if you would need to make some arrangement with your company re the sur-charges for your accident; talk with the Division of Insurance.) Personally, I would strongly advise against this alternative. For even if the chances are that you would not have a major financially-disastrous accident, I would not want to risk my financial wel-fare and that of my family in the event of that disaster.

    Although Massachusetts typically ranks between third-highest and fifth-highest for average state-wide premium, we have had – as of 2007, the last year of our former state-set rating system and the most recent year for which statistics are available – the lowest uninsured motorist rate in the nation at only 1%, far below the second-place state and 14 times better than the national average. So our former system must have been doing something(s) right. Through Will, bills have been filed not only to preserve what was best of our past but also to incorporate significant state-wide savings. For by combining the better features of our former process with the better features of some other states, we could have the best system in the country. Bar none.

    I hope that the above can be of some assistance to you. The issue of automobile in-surance and its reform is complex, with strong special interests involved (we are talking about $4B a year in premiums). If you would like, I’d be glad to talk with you more fully. Maybe you could leave your number with Will and I could call you.

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