Dealers Insurance – Not A Place You Expect To Get A Return On Your Investment Of Over 10%

I’m willing to bet that most car dealers out there don’t think of their insurance policy as an investment.  And the few that do probably don’t think that as an investment, their garage insurance policy will generate an investment return unless they have a loss.  But because insurance companies are always looking for ways to determine which of their clients will have losses and which will not, sometimes this search generates changes that can offer the dealer some very nice choices.  Such is the case with the paid in full discount. 

Dealers insurance is really not very different from other kinds of insurance policies when it comes to risk selection by the insurance companies.  Everyone understands that if the insurance company can tell in advance which dealers will have losses and which will not, then they will make a lot more money.   The search for just the right metric to help them determine this is a bit of a Holy Grail type search.  Now insurance companies have relied heavily on many different factors to choose which auto dealers to accept as clients and which ones to walk away from.  Some of these factors seem obvious to the lay person.  Some of the more obvious ones are the driving records of the dealers, the past loss history of the dealers or the general condition of the dealership location itself.  Others factors are less clear, like running a credit check on the dealer or refusing to insure dealers who have a buy here, pay here service on site.  But if the insurance companies have one thing going for them, it is past data.  If they can come up with a way to back check a new idea against past experience, then they will often assume that they can project this behavior and risk assessment into the future.  The paid in full discount idea was probably something that simply jumped into someone’s head one day.  They then simply had to compare the loss histories for dealers who paid in full for their garage policy against those that paid monthly or on some other schedule.  They must have found that the pay in full group had fewer losses and so this new idea was born.

Auto Owners Insurance Company, an insurance carrier who insures many dealers across many states must have made this discovery recently.  Once they knew that dealers who paid in full had fewer losses than those who used payment plans, they simply needed a way to add an incentive to these pay in full accounts so that they could attract more of them over time.  What they came up with, I think, is very generous, though it may just reflect the difference in loss histories between these two groups.   Auto Owners now allows a 10% discount to all dealers who pay in full on their garage liability and dealers blanket insurance policies. 

Now if you are a dealer and you purchase your insurance from Auto Owners, consider the math on what this means.  Saving 10% on the cost of your dealer policies by simply paying in full is like receiving a 10% return on your investment money. If you had to borrow the money from the bank to pay for your garage insurance, I doubt you would have to pay anywhere near 10% interest.    But actually the math tells us that it is even better than that.  Assume for a moment that the cost of your garage insurance policy is $1000 and you only have to pay $900 for the policy if you pay in full, then that is a quick 10% return.  But if you compare this to paying 10 monthly payments of $100 each then the return is much greater than 10%.  This is because each month that you pay off the balance, you have less and less left to invest somewhere else to obtain some return.  So in the long run a 10% discount might generate as much as 12% or more return, depending on how many payments you have and how quickly you pay off your garage policy.

Over time, this generous discount will probably go away.  That’s because although it is designed to attract the better risk dealers who usually pay in full, the incentive will now attract some of the monthly pay plan dealers as well since it is so generous.  Once that starts to happen, the risk assessment piece of the puzzle becomes less clear and over time the pay in full group’s loss history will more nearly reflect that of the monthly pay plan group.  So my advice would be to take advantage of this discount while it is still around.

Clinard Insurance Group, located in lovely Winston Salem, NC actively insures more than 300 used car dealers, all across North Carolina, South Carolina, Tennessee, Virginia and Georgia.  We would love to help you save money on your dealers insurance policies, so please call us, toll free, at 877-687-7557 or visit us on the web at www.TheAutoDealersHelper.com.   

Don’t Let An Auto Accident Turn Into An Identity Theft Loss

While auto accidents are a common occurrence all over the country on any given day, a recent NAIC study found that very few people know what steps they should take after an accident occurs and what information they should or shouldn’t share with the other parties to the accident.  The problem is that right after an accident happens; most people are so upset that they are not paying much attention to protecting their identity.  This momentary confusion provides a great opportunity for an identity thief to make his mark.

The National Association of Insurance Commissioners study recently discovered that most consumers are unsure about what they should do after an accident and which information they should record and what they should share about themselves.  There was also a lot of confusion about when and whether to call the police after an accident.  Here’s a short list of some of the most common misperceptions that this study revealed:

·         Nearly 30% of drivers believe that they are required to share their personal phone numbers.  This is not always necessary and calling the police will help you sort out exactly what you need to share with the other party.

·         25% of consumers would share their home address.  This of course gives identity thieves one more place to go to sort through garbage or mail to find out more about you to give them an edge in stealing from you.
·         Nearly 20% believe that the only time you need to call the police is if someone was injured in the accident.  The truth is that if the accident occurs on public property, the police would like to be called in every instance.  If you are not at fault, then calling the police is probably going to be to your advantage and quite often the police report is very helpful in facilitating your auto insurance claims process.
·         Nearly 40% felt that they should share their driver’s license with the other driver.  One in six would let the other driver photograph their license to save time.  But, since some retailers use driver’s license information to verify identity over the phone, this could be risky behavior.

T    The NAIC does have a downloadablechecklist on their website of the information you should obtain if you are involved in an auto accident.  Below is a list of the information that you should get and write down somewhere or record directly into your phone after you have been involved in an automobile accident:

1.       The date, time and location of the accident.
2.       The weather or road conditions if there are conditions that are not typical.
3.       A description of the accident itself, add direction of travel and estimated speed of each vehicle involved.
4.       Describe any and all injuries and include information about emergency response, either police or medical.
5.       Describe damages and take photos or video with your phone where possible.  You should photograph the license plates of the vehicles involved, the damages to all vehicles involved, the damage to your vehicle, and any damage to any other property or objects at the scene.  Also take photographs of landmarks and street signs to help identify the location.

At Clinard Insurance Group we insure several thousand families all across North Carolina.  We generally advise our clients to call us first before reporting their claim directly to the insurance company.  This is true for all types of claims from auto insurance and homeowners insurance claims, to business insurance or workers compensation insurance claims.  We may be able to better advise you the implications of your decision to either turn in the claim or not turn it in.  After that, you can make the choice based on this additional information.  We also provide a free phone app that will help you gather the information that you need after an accident.  You can find links to that app at www.ClinardInsurance.com or you may search for Clinard Insurance in the Android marketplace or the Apple app store.

Will Falling Bond Yields Mean Higher Insurance Rates For You?

It may at first seem a little disjointed.  How could volatility and falling yields in the bond market have any effect at all on your insurance rates?  I mean weather yeah, bad driving record yeah, but falling bond yields?  The answer lies in the way that insurance companies make a profit.  And in times of intense completion,  most of their profit comes from investment income as opposed to underwriting income.  The intense completion for your auto insurance dollars is on display on your television every day and probably in your junk email folder as well.  And this competition on pricing has put a lot of pressure on investment income.    The options in that arena these days may leave many insurance companies with no choice but to raise rates.

One very important metric that every insurance company follows very closely is called the loss ratio.  This metric has several different iterations. The easiest to understand is called the pure loss ratio.  This is simply a measure of all premiums taken in, divided by all losses paid out.  Of even more importance is a metric called the combined ratio which is all premiums taken in, divided by the sum of losses paid out plus all other expenses.  When the combined loss ratio goes over 100%, then the insurance company has lost money on their underwriting operations.  When this happens, they will need to find their profit in the income that they generate by investing your premiums until they need them to pay for losses.

Intense competition in the insurance marketplace has driven down rates steadily for many years and the combined loss ratio of many insurance companies is now up over the dreaded 100% level.  To protect themselves their choices are to cut expenses, increase investment income or increase the rates that they charge for the various insurance products that they sell.  As a rule,  insurance companies invest in very stable and safe government bonds.  But the volatility of the government bond market, along with dreadfully low yields has driven some insurance companies to invest more in corporate bonds.  The problem with this strategy is that it exposes the insurance company to debt risk if and when interest rates rise.  If we see more corporate defaults, then the insurance companies that have invested in corporate paper will suffer losses and will have to raise their rates even further.

With high quality corporate bond now yielding below a 2% return, corporate debt is no longer a viable option for helping to reduce the combined loss ratio to produce a profit for the insurance company.  This leaves insurance companies faced with the choice between reducing expenses or investing in riskier investments to chase higher yields.  If they reject these choices then they are left with one remaining option, raising rates.  When yields ran at 6% for grade A corporate bonds, then the insurance companies that took a chance on this type of debt had 4 additional points to play with on their combined loss ratio.  At 2% the margin is getting pretty thin.  Add in the risk of default by the corporations that issue these bonds and you can see the dilemma that may lead more and more insurance companies to raise their rates.  It is easy to see that while falling interest rates may be helpful to you from a mortgage or car loan standpoint, they can have a counter effect on your car insurance rates and your home insurance rates.

At Clinard Insurance Group, we insure thousands of families all across North Carolina with their auto insurance, their home insurance and life insurance as well as their business insurance needs.  If you would like to ask questions or receive help in any of these areas, I hope you will call us, toll free, at 877-687-7557.

New Workers Compensation Experience Modification Formula Increases Incentives For Getting Injured Employees Back To Work.

Starting with policy year 2013, the work comp experience modification formula will change.  The old formula has gotten long in the tooth and these changes are designed to give more weight to any given employer’s actual workers compensation experience than the old formula is able to better reflect any given company’s actual loss experience.  But for most people, the mod formula is confusing and complicated and grasping this change will be best understood once they receive their new, recalculated mod.  So while we won’t get into a lot of details about the math in this article, we will talk about the impact of getting your people back to work more quickly and how this one act can affect the final experience mod factors across different industries. 

Here is a simplistic answer to what is changing in the experience modification formula.  Your mod formula is the tool that the insurance industry uses  which attempts to compare your actual loss results with those that would be expected based on your payrolls for each class code on your workers compensation insurance policy.  Primary losses, one side of this formula, are currently capped at $5000, regardless of how much more than that is actually paid out.  This is called the split point and this is what is changing.  Beginning next year this cap will increase and by 2015 will be more than $15,000.  After that it will change to reflect the inflation rate.   For many employers with claims over $5,000, the primary impact of this change will be to push bigger numbers to this side of the formula.  While the mod changes should be nearly neutral over the entire universe of workers compensation policies, some companies will see big increases while others may see decreases.  So how vulnerable is your company and while we are at it, your industry to the potential for large experience modification factor increases?

Step one to control your mod factor is to control the existence of any losses in the first place.  This means prevention is your number one cure.   But the focus of this article is to look at things that you can do once you’ve had an accident to help reduce the negative impact of that loss on your mod.   When I look at the formula, and how it is calculated, it becomes increasingly obvious that you should try and get all injured employees back to work before the disability waiting period (7 days in NC) runs out.  This is because the mod formula applies a 70% discount to all medical costs for claims that have no disability component.  Once your injured employee starts drawing disability, then the discount goes away and all of the medical costs are now dumped into your mod formula.  You can see why it is so important for you to find a workers compensation insurance company that has the loss control and back to work programs that can help prevent you from owning a claim that has gotten deep into the disability coverage of your policy.

Because all industries are different and have different types of claims, the impact of an effective back to work program varies a bit by industry.   Summit Insurance recently released a study of several industries and the anticipated impact of the mods for businesses in those industries depending on whether or not they were able to access an effective return to work program.  Here’s a sample of some of their results.  If you are in the automotive repair business then an effective back to work program could reduce your mod on your garage workers compensation insurance policy under the new formula rules by 6 points.  That would be a savings of $600 per year on a $10,000 policy for every claim that you have.  Landscapers workers compensation insurance policies will average a 3 point reduction as do electricians workers compensation insurance policies and workers compensation insurance policies for HVAC contractors.  Plumbers are likely to see a 4 point reduction and restaurants with workers compensation insurance policies could enjoy a 6 point mod reduction per claim for choosing a workers compensation carrier with an effective back to work program in place.

These numbers reveal once again that choosing a workers compensation specialty company with their associated loss control and back to work programs can save you a substantial amount of money in the long run by helping you keep your experience modification factor lower.  Generally I advise people to place as many of their policies with the same insurance company for the best treatment and lowest rates.  But workers compensation is another animal.  Here your rates will reflect your past losses through your experience modification factor and so you will have to live a long time with your mistakes.  For that reason, every business should treat their workers compensation insurance a bit differently and make sure that they choose and agent and a company that have experience in this area.   I would suggest that you to take some time to read the loss control and claims costs control features on the web site for the company that provides you with your workers compensation insurance policy.  Take advantage of what they offer and implement where you can to prevent losses and to get your injured employees back on the job as soon as possible.  If you need any help at all with your workers compensation insurance, please call us, Clinard Insurance Group,  toll free, at 877-687-7557.

Pay As You Go Car Insurance – The Future Of Car Insurance Rates?

Telematics is the process of gathering data on your driving habits and transmitting them to your insurance company to determine your risk and thus your final car insurance rates.  While this used to sound like science fiction, telematics for car insurance is no longer just an idea that may happen someday.  This new technology is gaining acceptance and traction and it promises to have impacts on our society far beyond just insurance rates.  The impact of this technology could save your life one day.

Telematics is also known as pay as you drive, or usage-based insurance rating.  It has been a bit of a rating nirvana that the insurance industry has been eyeing for a long time.  Originally insurance companies only hopes that they could determine how many miles a year that you drive and use this information to provide you with a car insurance rate that more accurately reflects your driving risks.  But with the development of this technology, telematics will now go far beyond that original goal. 

Telematics and car insurance have hit several brick walls in their merging process over the years.  The main limiting factors were cost, data management, and privacy.  In the early years, the cost to install a device in the vehicle that could transmit data to the insurance company only really made sense for large corporate fleets of vehicles.  But over time these costs have come down and the devices are now very affordable in a one car installation situation.  Some insurance companies are working on apps for your smartphone to do all of the work so that no installation costs come in to play at all.   Data management was a problem until recently.  With the expansion of smart phones, more and more bandwidth has been created which allows the flow of the huge amount of data that any car will collect on its driver.  Some pay as you drive systems are now able to track and transmit over 100 data points on your driving at any given moment.   Privacy is still the last hoop to jump through, but that problem may be fading away.  This is because today’s youth seem to not have a great a concern or desire to protect their privacy.  This is already evident in the number of phone apps that track your location and post them publicly for others to see.

Telematics will allow the insurance company to adjust your car insurance rate based on your driving habits.  The data collected is now so rich that they can track how fast you accelerate, how fast you drive, how hard you brake or take corners in addition to where and how many miles you drive.   All of this data allows the insurance company to much more accurately predict the likelihood of you causing an accident than they ever could by simply studying  your credit score or the number of speeding tickets that you have been issued. 

Trucking companies that have installed telematics in their fleets, almost universally report that accident rates go down right away.  It turns out that drivers who understand that everything they do and everywhere that they go is being measured and monitored, suddenly become much safer drivers.  Can this effect be extrapolated out  to the population as a whole if everyone were to have a telematics device in their car?  We don’t know for sure but there seems to be evidence that this may be true.

Of course telematics won’t benefit everyone.  If the car insurance world has inadequate information on which to base their rates today, then that means that some people are subsidizing others.  If the insurance company doesn’t know for sure if you are a safe driver or a risky one, then you can be sure that the safe drivers are subsidizing the riskier ones.  This means that as telematics become more common, some drivers will save money as a reward for their safe driving habits, while other drivers, or those that refuse to use telematics will have to pay more to make up the difference.  This is why I firmly believe that eventually telematics will be ubiquitous in the insurance world and in fact, cars may soon come equipped with the telematics devices as a standard part of the vehicle.  Eventually it will be much more, if not simply too expensive to purchase a car insurance policy that is not based on telematics.  The insurance company will soon come to the conclusion that the old fashioned rating system blinds them from seeing the bad risks out there.  When that happens, they will charge a much higher rate for those policies.  Eventually no one will be able to afford a policy whose rate is not based on telematics data.

If telematics do change our behavior behind the wheel and force us change our habits to drive more safely, then I think that this technology can be a real game changer.  Just how long it will take for this technology to be the standard way car insurance rates are calculated remains unknown.  But I’ve learned not to underestimate just how quickly something like this can become the norm.    It’s hard to imagine that just a few years ago most people had never heard of a smartphone.  Telematics could make this jump into ubiquity just as quickly.

At Clinard Insurance Group, we work hard to help all insurance buyers become informed consumers.   We would love to help you with your home insurance, your car insurance, your life insurance or even your business insurance policies.  Please call us toll free, at 877-687-7557.