I was watching March Madness over the weekend and saw some great basketball and some hilarious commercials.
As usual, the beverage and insurance companies came up with some creative ways to combine their products with the basketball tournament. Several insurance companies showed how quickly they would pay benefits and make things right when some of their customers managed to get into a lot of trouble.
At first thought, these commercials seemed clever and funny. As I saw them the second or third time, I thought about how much their budget was. They really put some money into actual destruction of cars and houses, not to mention the cost of the special effects. But the more I thought about what they were representing, I thought, “Wow, they are showing how quick they are willing to pay out benefits, but they aren’t showing the repercussions of the claim.” I know, this isn’t something most people think of when they watch the commercials, but it’s my job. I represent these very customers (ok, not the actual actors, but people like them) when the insurance company decides they’re not going to pay.
Don’t get me wrong, insurance companies frequently pay the benefits they promise. If they didn’t, no amount of slick advertising would keep them in business. But, all too often, payment is delayed much longer than it should be. And worse, payment is frequently completely denied.
The reality is, almost every time a claim is made, your premiums will increase. That’s why when my windshield was recently chipped, I decided to get it repaired without making a claim. It’s also why when someone backed into my car causing $500 in damage (a scratch, really, but they would have to take my bumper off, sand it, paint it, etc.), I didn’t make a claim. In fact, I didn’t fix the damage. I treat my own car insurance like catastrophic health insurance coverage – it’s there for big problems, not small ones. And my premiums are low.
But, wait, you say, if it wasn’t your fault, why would your premiums go up? My favorite example of why this happens is one of my previous clients. She has been in about eight car accidents. Amazingly, has never been at fault. Yet she pays much more than average because of her accident history. Actuaries (number-crunching statisticians) at insurance companies know that she is a magnet for accidents, like a bright light to a moth, and they won’t stay in business long if they have to insure her at the same rate as someone who is never in an accident. Although some states have laws to protect against this and the protections are effective for individual accidents, the economics of such laws drives up the overall rate in the state. So, next time you are watching a commercial with a car or house getting destroyed and an insurance agent laughing about it, remember that they are laughing all the way to the bank.
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