I help set rates for a Major Canadian Insurance Company! Some thoughts . . .

[ManoWar]

I have read through 4 pages and i already have some questions that are bugging me, please excuse me if the questions where answered in the previous pages.

First i see a lot of people bring up the states and the price difference there.

You state that you could not go on the road with a 40k coverage. Well to be honest this is you, for me personally i have spent over 20k until now on insurance and neither i or anyone else has ever used a cent of that.

I understand that my luck can run out tomorow, but if the difference in price would be as shocking as ontario vs USA then i will take the 40k any day. 200$ vs 2000$ is surely a risk i am willing to take.

My beef is not with the insurance industry, obviously those companies are not in the business of philantrophy, rather their in the business to make money. My beef is that the gov't has failed to make competition, same would apply to the phone companies as well as cable companies, there is a lack of competition in canada and this is hurting me and you the consumer.


You are again right when you state that ontarians tend to take 14 times more to heal then people from BC, thats wrong and maybe the gov't again can intervene. In the meantime maybe private investigators can weed through all these bogus claims. Its a thought isn't it.....


Do you tend to agree that it would be best if automobile (car+bike) insurance is run by the gov't, if it would be run by competent people than we could see a 50% reduction on average in premiums and still garnish a profit according to those statistics on profits made by the insurance industry :P

Or maybe stop making insurance mandatory, considering that there is a no fault system, some people might be willing to take the chances. I know that is not the safe thing to do, but it seems that since the second world war, people have been obsesed about covering any type of guilt and attempt to have everything "safe" with no risks.
Allow me to take upon myself the risk of getting into a serious accident without insurance, give me the oportunity to choose! I think in a free society you should be allowed to choose, especially since i am learning now that in ontario, there is a no-fault system, meaning that if i hit a guy he is automatically covered and its up to me to pay it off at a later day.

[VifferFun]

First i see a lot of people bring up the states and the price difference there.

You state that you could not go on the road with a 40k coverage. Well to be honest this is you, for me personally i have spent over 20k until now on insurance and neither i or anyone else has ever used a cent of that.

I understand that my luck can run out tomorow, but if the difference in price would be as shocking as ontario vs USA then i will take the 40k any day. 200$ vs 2000$ is surely a risk i am willing to take.

Sorry, but you will have to read through the previous pages for the answer to this question, as I have already covered it in detail.

My beef is not with the insurance industry, obviously those companies are not in the business of philantrophy, rather their in the business to make money. My beef is that the gov't has failed to make competition, same would apply to the phone companies as well as cable companies, there is a lack of competition in canada and this is hurting me and you the consumer.

I have already explained this in detail as well. There is actually HUGE competition in the Ontario Insurance marketplace. We are talking about over 100 companies for Ontario alone . . . is that not enough competition?

You are again right when you state that ontarians tend to take 14 times more to heal then people from BC, thats wrong and maybe the gov't again can intervene. In the meantime maybe private investigators can weed through all these bogus claims. Its a thought isn't it.....

Yes this is a problem. Private Investigators are already used by insurance companies, but we can't investigate every claim without incurring huge expenses, as investigators are not cheap.

Do you tend to agree that it would be best if automobile (car+bike) insurance is run by the gov't, if it would be run by competent people than we could see a 50% reduction on average in premiums and still garnish a profit according to those statistics on profits made by the insurance industry :P

The advantage of a government-run system is that you can cut out profit; however, profit isn't a huge part of the Insurance equation as I have already explained. If you go with a government-run system, this would be a monopoly and you have already expressed your distaste for a lack of competition. If you have a complaint with the government-run insurance system, what do you do? Typically in a government-run system, the good drivers pay higher premiums to compensate for the bad drivers (i.e. drivers all pay a more standardized premium regardless of their driving experience). This is possible in a government-run system because antiselection is not an issue, since there is no competition. (Antiselection is the situation where an insurance company who is not adequately priced for poor risks gets a multitude of poor risks as a results). Also, when insurance is run by the government, it becomes increasingly political. It wouldn't be uncommon to see a reduction in insurance rates with a simultaneous increase in taxes . . . it's just shifting the cost.

Or maybe stop making insurance mandatory, considering that there is a no fault system, some people might be willing to take the chances. I know that is not the safe thing to do, but it seems that since the second world war, people have been obsesed about covering any type of guilt and attempt to have everything "safe" with no risks.
Allow me to take upon myself the risk of getting into a serious accident without insurance, give me the oportunity to choose! I think in a free society you should be allowed to choose, especially since i am learning now that in ontario, there is a no-fault system, meaning that if i hit a guy he is automatically covered and its up to me to pay it off at a later day.

I have already explained in the previous pages why mandatory insurance is a necessity in civilized country such as Canada. Also, it appears that you don't understand no-fault insurance, so have a read through the previous pages for some explanation. No-fault insurance is purely a method to resolve squabbles between insurance companies over who pays for small claims (hence, saves on court costs). Although your own insurance company pays for your small losses regardless of fault, they sue the company of the faulty driver when the losses exceed a certain threshold. If the other driver has no insurance, then where does this money come from? Essentially, if insurance was not mandatory then no-fault insurance would cease to exist. The no-fault system is based on the fact that insurance is mandatory.

Cheers!

[eliu36]

Very informative thread. Thanks ViFFeR for your contributions. If insurance companies make some money on investments, do you know which ones? It's been a rough ride lately (no pun intended)!

[VifferFun]

Very informative thread. Thanks ViFFeR for your contributions. If insurance companies make some money on investments, do you know which ones? It's been a rough ride lately (no pun intended)!

No problem, I am happy to help.

Our portfolio of investments are required by law to match the duration of the outstanding claims that we have yet to pay out (which would be mostly for the long-tail lines such as Bodily Injury and Accident Benefits).

You are correct; the market has been doing quite poorly this year and you can expect to see the insurance industry take a hit this year as a result.

Cheers!

[ManoWar]

I have read all pages and i think we can get to some comon ground.

First something is wrong in the industry, be it because of the companies or just because of poor gov't management, something is not right. The exorbitant amounts people pay for the most basic of insurance coverage is not right, for me personally, i have to work 2 months to be able to pay my yearly premiums for car and motorcycle. I think that the record profits in the past couple of years show who is cashing in, i've read your excuse, but frankly its just an excuse, even thought statisticly you stated that insurance companies loose money, i fail to see that given the profits they made for 3 years running.
There is no competition when you have 100 companies quoting you within 200$ of each other.

I respect the fact that you try to defend a defenseless industry, i believe you are well intended in your comments and efforts but unfortunately i believe that you fail to see the bigger problem, that the company you work for has one business statement, to make more money , and guess what me and some other poor chap is going to have to fork it out.

You also stated that no one should run with 200k insurance and the fact that the premium difference is only 22$ a month, yet you defend the US market by stating that they have a 40k threshold. Yet their average insurance cost is 10x if not in some states and cases 20x lower than ours, also your stated that the 2mil liability is not the biggest part of your premium, accident benefits is! And lets not forget that there is no OHIP in the states!

And lastly, do you agree to the fact that if i had only 40k coverage, that someone would not bother suing me if they have a bogus claim of soft tissue damage, knowing very well that they will never receive that money back? This way it would really limit the people who make bogus claims and you shall see the payouts decrease.

[Addicted]

ok ... 17 pages ... I'm not reading all that ...

some points I thought of though ... which have probably been covered already but I'm going to vent anyway are ...

1) Why are insurance rates increased by 2 and 3 times normal when you have a ticket. The ticket didn't cost the insurance company money. Why the hell do they care if you got a ticket for going 10 kms over the speed limit. Now if you crash the car and it's your fault then sure ... the insurance company has a right to get their money back some how. But getting a speeding ticket did NOT cost the insurance company anything so why do they raise our insurance rates. It's like you go to the store and drop a bag of milk by accident... should you have to pay for two the next time... It makes NO SENSE!!!!

2) The comment about insurance companies not making much money is HORSE *****. Every single year, the news reports that the Insurance companies are in the top three money makers in the world, right next to banks and diamond mines. Just like gas today, insurance companies know you are FORCED to have insurance, so they can and will charge you whatever they want. I'm just gald they don't charge and arm or a leg, or a first born child for that matter, god knows there would be a lot of us limping around.

3) Even though we pay thousands of dollars a year for insurance, when it comes to getting paid out on a wrecked car, why do insurance companies take MONTHS to pay and then only pay half of what the car is actually worth on the open market. There is NO WAY anyone could replace the car they were driving with the money the insurance companies pay out, so why do we have to pay insurance on the car we are driving. Why can't we pick how much we want to be paid out if the car is writen off. I drive a 20,000 dollar car, I want to be paid out 20,000. How much is my insurance??? That simple.

Just an absolute SCAM!!!!!!!!!!!!!!!!!

[VifferFun]

First something is wrong in the industry, be it because of the companies or just because of poor gov't management, something is not right. The exorbitant amounts people pay for the most basic of insurance coverage is not right, for me personally, i have to work 2 months to be able to pay my yearly premiums for car and motorcycle. I think that the record profits in the past couple of years show who is cashing in, i've read your excuse, but frankly its just an excuse, even thought statisticly you stated that insurance companies loose money, i fail to see that given the profits they made for 3 years running.
There is no competition when you have 100 companies quoting you within 200$ of each other.

You are correct that there are some issues, I never debated that; however, the amounts you are paying for insurance directly reflects the amount that the insurance company expects to pay out in claims for a person in your position. if you are paying high premiums, then you are considered high risk, and hence the expected amount of claim payouts is high. Yes, the insurance industry has done very well the last few years, but as I have previously explained, insurance profits go in cycles of "good" and "bad". We just ended our good cycle and are now in the bad cycle as of 2008. Check out the profit ratings at the end of this year and try and see if your comment still holds true.

I respect the fact that you try to defend a defenseless industry, i believe you are well intended in your comments and efforts but unfortunately i believe that you fail to see the bigger problem, that the company you work for has one business statement, to make more money , and guess what me and some other poor chap is going to have to fork it out.

The industry isn't defenseless, but just really misunderstood. I completely understand because insurance is a very complicated financial product, and when you force someone to buy it, clearly they will be upset.

I never said that insurance wasn't trying to make money . . . we are businesses with shareholders, not a charity. We are confined to the rules and regulations set out by the Financial Services Commission of Ontario, and as such, we cannot charge excessive premiums. If we had a consistently high profit margin, the regulators would be on our case to reduce rates or shut us down. You are speaking as if rates are horrible for everyone, but ask people in the "good risk" category if they feel they are paying too much, and I doubt they will think so. I am 25 and I believe the premium I pay is fair for the coverage I receive, although it is not cheap. I too have to work hard to keep my car/bike on the road. The people who mainly complain about rates are those in the high-risk categories (i.e. lots of tickets, collisions, or just unfortunate enough to be young and male).

You also stated that no one should run with 200k insurance and the fact that the premium difference is only 22$ a month, yet you defend the US market by stating that they have a 40k threshold. Yet their average insurance cost is 10x if not in some states and cases 20x lower than ours, also your stated that the 2mil liability is not the biggest part of your premium, accident benefits is! And lets not forget that there is no OHIP in the states!

I knew this would come up, and it's a very good question. The reason why increasing your coverage from $1M to $2M is very cheap is because the likelihood of paying in excess of $1M is not that high. However, if you were to increase from $40K to $100K, the likelihood of paying in excess of $40K is VERY high, so the cost of increasing your coverage from $40K to $100K exceeds the cost of increasing your coverage from $1M to $2M. Do you following what I'm saying? This is all just basic "Expected Value" and you can learn about it in first-year university stats, or even high school (Finite Mathematics). Basically, expected value is the probability multiplied by the amount. Do some research online if you are interested.

Also, it is insurance, not OHIP, who pays your huge medical bills. For the small bumps and scrapes where OHIP pays, the insurance companies must pay what is called a "Health Service Levy" to OHIP.

And lastly, do you agree to the fact that if i had only 40k coverage, that someone would not bother suing me if they have a bogus claim of soft tissue damage, knowing very well that they will never receive that money back? This way it would really limit the people who make bogus claims and you shall see the payouts decrease.

That's an interesting point, and I think I would agree with you. If you hurt someone and had had very little assets to possess, the likelihood of the person suing you over a small grievance would be greatly decreased. However, what if you severely hurt someone? Could you live with yourself knowing that you destroyed someone's life and didn't having the means to make things better? I'm sure I'm not the only with a sense of decency in North America . . .

Very good questions by the way!

[VifferFun]

1) Why are insurance rates increased by 2 and 3 times normal when you have a ticket. The ticket didn't cost the insurance company money. Why the hell do they care if you got a ticket for going 10 kms over the speed limit. Now if you crash the car and it's your fault then sure ... the insurance company has a right to get their money back some how. But getting a speeding ticket did NOT cost the insurance company anything so why do they raise our insurance rates. It's like you go to the store and drop a bag of milk by accident... should you have to pay for two the next time... It makes NO SENSE!!!!

Your insurance rate should not be increased two to three times as a result of a minor conviction. Most companies give you the first as a "freebie", and subsequent convictions might increase your rate by about 10%. If, however, you have a major conviction, your rate can increase by about 50%. If you have a Serious/Criminal conviction, your rate increases by about 100%. First off, I think it's great that insurance can help be a deterrent for the idiots out there who foolishly drive under the influence of alcohol/drugs, race, road rage, etc. Your premiums increase with convictions because it lumps you into a new class of driver that has an increased risk of getting in an accident. Statistics show that people who get convictions get into more accidents and cause more damages, so why shouldn't they pay more than someone with a squeaky-clean record?

When you get in an accident, the increased premium is not to try and recoup losses, but to try and adequately price for losses that are expected to happen in the future. Because you have already been in an accident, the probability that you will be in another is much, much higher.

Essentially, tickets and accidents act as an indicator to predict future accidents, which indeed costs the insurance company money!

2) The comment about insurance companies not making much money is HORSE *****. Every single year, the news reports that the Insurance companies are in the top three money makers in the world, right next to banks and diamond mines. Just like gas today, insurance companies know you are FORCED to have insurance, so they can and will charge you whatever they want. I'm just gald they don't charge and arm or a leg, or a first born child for that matter, god knows there would be a lot of us limping around.

Sorry, I have already answered this question many, many times. Please refer to my previous response up the page a little or in the previous pages of the thread. Also, I don't know what news report you are reading, but I don't think that insurance is one of the top three money makers, although you can correct me on this. Please post a link for me.

3) Even though we pay thousands of dollars a year for insurance, when it comes to getting paid out on a wrecked car, why do insurance companies take MONTHS to pay and then only pay half of what the car is actually worth on the open market. There is NO WAY anyone could replace the car they were driving with the money the insurance companies pay out, so why do we have to pay insurance on the car we are driving. Why can't we pick how much we want to be paid out if the car is writen off. I drive a 20,000 dollar car, I want to be paid out 20,000. How much is my insurance??? That simple.

I'm not sure who you are insured with, but insurance companies typically settle claims very quickly and are quite generous with the payouts. I have been in three not-at-fault collisions myself (with three different insurers) and every time I was amazed at the speed at which the claim was handled, and the generosity of the insurance company with the settlement. I was fully compensated and didn't feel like I was any worse off financially after my collisions than before. If anything, I feel like I had benefited from the collisions.

If you are in a collision with your $20K car and it is now worth $15K because you drove it a year, you WILL be compensated fairly at $15K. If you expect that you will get the value of the car from when you bought it brand new, you are dreaming (unless you buy a specific upgraded coverage for this situation). The goal of insurance is to get you back to where you were before the collision . . . no more, no less.

I believe that your statement that insurance companies handle claims poorly is completely unfounded. Have a look at the FSCO Customer Satisfaction Survey I posted a few pages back. The industry average is nearly 85% satisfaction. Does this sound like we are treating people poorly in the claims process to you?

Just an absolute SCAM!!!!!!!!!!!!!!!!!

Come on, let's try and maintain the intellectual integrity of this thread.

[ManoWar]

Its true you do have a point about the people complaining are the ones who are at high risk.
It bothers me, that as a 20yr old student, with over 300,000kms driven so far in my life time, i am forced to pay out of my eye sockets. I have 1mil liability on both my car and motorcycle, both together are probably valued at 10k, bare bone minimum no fire and theft, and yet i still pay 5k a year for both of them. I figured thats the price i had to pay in order to get the better rates, and it doesn't look to bright in my near future thats for sure.....


Ofcourse i am sour when insurance companies can get away with discrimination, and i don't think anyone can convince me otherwise. When you factor in gender i consider it discrimination and as i recall so does society in general. I would be very interested if statistic would exist on race as well and im sure insurance companies would love to be allowed to use those as well, can you imagine a 20yr old chinese male, and how his rates would look?


I apreciate your insight, it certainly put some things in perspective.

[johnp]

Comments on premiums & profitability of insurance companies.

[1] Generally it's a very profitable business, and with somewhat restricted competition. For example, you couldn't just start your own insurance company - you need govt. approval to do that. The industry is very heavily regulated and that means barriers to entry which typically would mean higher than 'purely competitive' prices.

It does make sense though that this industry should be heavily regulated & that automatically means that it's not an easy business to get into.

On the other hand I can't recall a bankruptcy in the industry - I could be corrected here.

[2] Also the many insurance companies may each specialize by geographic area, type of insurance coverage, type of bikes covered, type of risks covered so although there could be a lot of insurers out there, at any time YOU may, for practical purposes, only able to use one or two different insurers. So the real competition may be less than the total number of insurance companies might make you think.

[3] Although it's true that younger riders tend to get into accidents more frequently and should pay more, it's still true that whatever premium you pay includes some 'reasonable' profit for the insurer.

[4] So to reduce your premiums, I think comments earlier in this thread suggest only insurancing for catastrophe, i.e. get tons of liability (yes $2 million if recommended) and foget about theft and collision. 5 years from now you'll have forgotten about the stolen bike but you don't want to be paying a liability claim for the rest of your life.

[VifferFun]

Its true you do have a point about the people complaining are the ones who are at high risk.
It bothers me, that as a 20yr old student, with over 300,000kms driven so far in my life time, i am forced to pay out of my eye sockets. I have 1mil liability on both my car and motorcycle, both together are probably valued at 10k, bare bone minimum no fire and theft, and yet i still pay 5k a year for both of them. I figured thats the price i had to pay in order to get the better rates, and it doesn't look to bright in my near future thats for sure.....

Yes, I recall the days all too well when I was paying large premiums as well. I'm 25 now, so it wasn't a long time ago. I was angry as well back when I was 17, but I didn't have the knowledge that I have now to understand why premiums had to be set that way. Some companies, such as State Farm, try to segregate the "good" young drivers from the bad ones by giving a good-student discount, or a discount for drivers training; I suppose that their stats show that straight-A students are more responsible on the roads than others.

Now that I am in the 25+ category with a clean driving record, I am now paying pretty low premiums. If the insurance companies were not to rates based on age/gender/driving record etc., I would be paying higher premiums to compensate for the crappy drivers out there who are paying less than they ought to, and that just wouldn't be fair to me. You will be in the 25+ category soon enough, and if you keep your record clean, you will enjoy the same benefit that I am.

Ofcourse i am sour when insurance companies can get away with discrimination, and i don't think anyone can convince me otherwise. When you factor in gender i consider it discrimination and as i recall so does society in general. I would be very interested if statistic would exist on race as well and im sure insurance companies would love to be allowed to use those as well, can you imagine a 20yr old chinese male, and how his rates would look?

I apreciate your insight, it certainly put some things in perspective.

Yes, I'm not going to disagree with you; it is a form of discrimination. Some provinces have disallowed insuarance companies to rate based on gender and marital status. This means that the premiums for married females will increase, and the premiums for single males would decrease. The pool of insurance money collected in premiums would remain the same, but it would be allocated to the policyholders in a different way.

I believe this discrimination is necessary in order to adequately price an insurance risk. This can be assimilated to when you apply for a loan: is the bank being discriminatory if they change you a higher rate because you make less money? I guess that isn't the best example, because people hate banks just as much as they hate insurance companies :P

Your point about ethnic pricing is interesting. Ethnic pricing was actually mainstream back in the 1940's, which is really hard to believe now. I have seen an insurance application from the mid-forties, and it was really quite funny . . . it read something like this:

Gender: Male
Ethnicity: British
Occupation (or occupation of husband if married female): . . .

You can see that the perspectives on ethnicity and female rights have really improved over the last 60 years!

Cheers!

[VifferFun]

[1] Generally it's a very profitable business, and with somewhat restricted competition. For example, you couldn't just start your own insurance company - you need govt. approval to do that. The industry is very heavily regulated and that means barriers to entry which typically would mean higher than 'purely competitive' prices.

It does make sense though that this industry should be heavily regulated & that automatically means that it's not an easy business to get into.

I have read an article that explained that there is very little barrier to entry in the insurance industry. It is not the regulation that would be a barrier, but the amount of financial capital necessary to form your own company. It requires a lot of money to show that you are capable of paying out claims for your policyholders.

On the other hand I can't recall a bankruptcy in the industry - I could be corrected here.

I'm not sure about this, but I know of at least one company that nearly went bankrupt about 10 years ago. The reason for this is that they took a much-too-aggressive pricing strategy and didn't adequately price for the risks they were taking on. The result? Claims exceeded premiums. Insurance companies can't operate like that for very long. . .

[2] Also the many insurance companies may each specialize by geographic area, type of insurance coverage, type of bikes covered, type of risks covered so although there could be a lot of insurers out there, at any time YOU may, for practical purposes, only able to use one or two different insurers. So the real competition may be less than the total number of insurance companies might make you think.

Yes, that is somewhat true, but the specialization isn't that extreme. There will likely be more in the neighbourhood of 50 companies that would offer a competitive premium to you. Just like any other product/service that you would buy, you have to shop around. There are websites such as insurancehotline and kanetix that can help you with your search. Some companies such as TD, Belair, Allstate, State Farm, etc. also offer online quoting. Shopping around for insurance has never been easier, but if you are really lazy, you might end up paying more than you should.

[3] Although it's true that younger riders tend to get into accidents more frequently and should pay more, it's still true that whatever premium you pay includes some 'reasonable' profit for the insurer.

Yes, I never argued that point. A profit margin of about 7% would make an insurance company feel that they had a successful year.

[4] So to reduce your premiums, I think comments earlier in this thread suggest only insurancing for catastrophe, i.e. get tons of liability (yes $2 million if recommended) and foget about theft and collision. 5 years from now you'll have forgotten about the stolen bike but you don't want to be paying a liability claim for the rest of your life.

I wouldn't forget about the optional coverages.

Personally, I don't bother with Collision coverage because I feel that I am a safer driver/rider than the general public. If I were to drop my bike, I would likely just pay out of pocket anyways to protect my driving record. The only situation where I lose is if I hit someone else, my bike is damaged, and I am forced to make a claim due to the liability. In this situation I would lose my bike. It's only worth about $4K so I could like with that.

Also, personally, I purchase the Comprehensive coverage. It's not hard for someone to steal you bike or tip it over in a parking lot, and if that ever happened, I would want to claim it. Fire/Theft/Vandalism claims do not raise you rates.

Cheers!

[Addicted]

Your insurance rate should not be increased two to three times as a result of a minor conviction. Most companies give you the first as a "freebie", and subsequent convictions might increase your rate by about 10%. If, however, you have a major conviction, your rate can increase by about 50%. If you have a Serious/Criminal conviction, your rate increases by about 100%. First off, I think it's great that insurance can help be a deterrent for the idiots out there who foolishly drive under the influence of alcohol/drugs, race, road rage, etc. Your premiums increase with convictions because it lumps you into a new class of driver that has an increased risk of getting in an accident. Statistics show that people who get convictions get into more accidents and cause more damages, so why shouldn't they pay more than someone with a squeaky-clean record?

When you get in an accident, the increased premium is not to try and recoup losses, but to try and adequately price for losses that are expected to happen in the future. Because you have already been in an accident, the probability that you will be in another is much, much higher.

Essentially, tickets and accidents act as an indicator to predict future accidents, which indeed costs the insurance company money!.

Ok... fair enough ... you want to predict that an accident will happen based on the tickets that driver has recieved, so you should charge for it now. Fine. Ok, what if the accident never happens... so for the next 3 years we have to pay 10% more because we got a ticket at 2 am on some back road doing 10 over the speed limit. Thats great... why not just lump everyone in with muderes and killers on death row while you are at it. I never see the insurance companies REFUNDING that money after three years, saying hey ... sorry about the extra money we took because you were supposed to have an accident ... TOTAL RIP OFF

I'm not sure who you are insured with, but insurance companies typically settle claims very quickly and are quite generous with the payouts. I have been in three not-at-fault collisions myself (with three different insurers) and every time I was amazed at the speed at which the claim was handled, and the generosity of the insurance company with the settlement. I was fully compensated and didn't feel like I was any worse off financially after my collisions than before. If anything, I feel like I had benefited from the collisions.

If you are in a collision with your $20K car and it is now worth $15K because you drove it a year, you WILL be compensated fairly at $15K. If you expect that you will get the value of the car from when you bought it brand new, you are dreaming (unless you buy a specific upgraded coverage for this situation). The goal of insurance is to get you back to where you were before the collision . . . no more, no less.

I believe that your statement that insurance companies handle claims poorly is completely unfounded. Have a look at the FSCO Customer Satisfaction Survey I posted a few pages back. The industry average is nearly 85% satisfaction. Does this sound like we are treating people poorly in the claims process to you?

You really shouldn't make statements about my comments being unfounded. My comments come from PERSONAL experience. I was hit by a drunk driver and it took MOTORS INSURANCE 53 days to pay me. I was NOT at fault and yes I think 53 days is an unreasonable amount of money. Specially since they they want there money EVERY 30 days without grace.

My point about the value of the car is that it should be something we both agree to at the begining of the year and that is what I would pay my premiums on every month for that year. If I start the year on Nov 07 with a brand new 2007 car, but have my accident in Jan 08, why do I have to take the depreciation of a 1 year old car. I'm paying my premium for a new car. Both the insurance company and I should get to agree on what the pay out should be at the start of each year and I will happily the premium to support THAT pay out. Not some arbitrary number that the insurance company decides.

Yes, I still believe insurance is a scam ... insurance gets to charge what ever they want because they know we are FORCED to pay for it by law. I'm still gald they don't charge an arm or a leg... Hard to ride with only one arm.

[invictus43]

Ok... fair enough ... you want to predict that an accident will happen based on the tickets that driver has recieved, so you should charge for it now. Fine. Ok, what if the accident never happens...

All of insurance is about probability. You pay for collision even though you never have one. How is speeding any different? It's an indicator.

If I start the year on Nov 07 with a brand new 2007 car, but have my accident in Jan 08, why do I have to take the depreciation of a 1 year old car. I'm paying my premium for a new car. Both the insurance company and I should get to agree on what the pay out should be at the start of each year and I will happily the premium to support THAT pay out. Not some arbitrary number that the insurance company decides.

Did you ask your insurance company about this when you bought your policy? I had 2 years new vehicle replacement coverage. That is, if my car is written off or stolen within the first 2 years, I get a completely new vehicle no questions asked. I think it was an extra $14 a year or something.

[VifferFun]

Ok... fair enough ... you want to predict that an accident will happen based on the tickets that driver has recieved, so you should charge for it now. Fine. Ok, what if the accident never happens... so for the next 3 years we have to pay 10% more because we got a ticket at 2 am on some back road doing 10 over the speed limit. Thats great... why not just lump everyone in with muderes and killers on death row while you are at it. I never see the insurance companies REFUNDING that money after three years, saying hey ... sorry about the extra money we took because you were supposed to have an accident ... TOTAL RIP OFF

Refunds can't be issued, or there would not be sufficient money to pay out the claims for that group of people. I don't think you understand how insurance really works. Consider this simplified hypothetical scenario:

You and your friend agree to insure each other for a maximum loss of $10K (the value of each of your bikes). The agreement is that, in the event of an accident, this pool of money will completely replace your bike. Suppose you are a very cautious driver who respects others on the road, signals lane changes, and never do over 120km/h on the 401. Your friend, on the other hand, is a very aggressive driver who frequently exceeds 150km/h, enjoys street racing with friends on the weekends, and has three minor convictions. Would it be fair if you each contributed an equal $5000 to the pool? Who is most likely to make a claim and use the money in the pool?

This situation is very similar to the way insurance works. If you are a bad driver, statistics show that your likelihood of making a claim is increased. Although we can't tell if your friend street races (or has other poor driving habits) since he has never been caught, we must rely on what information we have, which includes convictions and prior claims. The stats show that these are highly correlated with the probability of a future loss.

To be fair, you should be contributing about $2500 to the pool, and your friend $7500. If we did as you suggested and transferred $2500 from you to your friend if no claim was made, would that be fair to you? Absolutely not. It would be irrational for you to agree to such terms. For the same reason, insurance tries to group people with similar characteristics.

Suppose now that you are still a pretty careful driver, but you have had the unfortunate experience of being caught for doing 20km/h over three times (three convictions). From the perspective of the insurer, you are now in the same driving profile as your friend, even though he races. You make the conscious decision to break the law, so you understand the consequences of doing so.

For the mathie people out there like myself who understand expected value, here is the same example that I explained above with some numbers:

Suppose the probability that you make a claim is 0.3
Suppose the probability that your friend makes a claim is 0.7
Then the expected payout is (0.3 + 0.7) * (10000) = 10000
This means that we need to collect 10000 to be adequately priced for the risk.

In order to be adequately priced, you should each pay your expected loss:
Your Premium: 0.3 * 10000 = 3000
Friend's Premium: 0.7 * 10000 = 7000

Suppose instead that we divide the premium evenly between you and your friend at $5000. Here is the net benefit/loss to each of you:
Your net benefit/loss: 0.3 * 10000 - 5000 = -2000
Your friend's net benefit/loss: 0.7 * 10000 - 5000 = 2000
You would have to be irrational to enter this agreement. You are compensating for your friends poor driving habits!

Now suppose that we offer a rebate to your friend if they don't claim. In other words, if your friend doesn't claim, then they would pay only $3000 instead of $7000.
Then the expected amount of premium collected would be the following:
3000 + 7000 - (1 - 0.7)(7000-3000) = 8800
If you were to claim but your friend didn't, you would be short $1200 to pay for your bike! In business terms, this means bankruptcy.

You really shouldn't make statements about my comments being unfounded. My comments come from PERSONAL experience. I was hit by a drunk driver and it took MOTORS INSURANCE 53 days to pay me. I was NOT at fault and yes I think 53 days is an unreasonable amount of money. Specially since they they want there money EVERY 30 days without grace.

I said that it was unfounded because you didn't support it. If you've had a personal experience that was poor, then that doesn't mean EVERYONE has had the same experience. I literally just got a call from a friend who was in a not-at-fault accident last weekend; she was ecstatic because the insurer offered her $23,000 for a truck that she only paid $15,000 for in the USA. I think you just got unlucky, but I'm sorry to hear about your unfortunate situation. I hope you are doing fine after the accident!

My point about the value of the car is that it should be something we both agree to at the begining of the year and that is what I would pay my premiums on every month for that year. If I start the year on Nov 07 with a brand new 2007 car, but have my accident in Jan 08, why do I have to take the depreciation of a 1 year old car. I'm paying my premium for a new car. Both the insurance company and I should get to agree on what the pay out should be at the start of each year and I will happily the premium to support THAT pay out. Not some arbitrary number that the insurance company decides.

That's actually not a bad idea; however, in general over 80% of claimants are satisfied with their claim payouts. I think it would be too much paperwork for what it is worth, but who knows? If there is a real customer demand for such an option, an insurance company will create it. Many companies already allow you to purchase an optional coverage that will pay you the brand-new value of the car, even if it has depreciated for a couple of years.

Yes, I still believe insurance is a scam ... insurance gets to charge what ever they want because they know we are FORCED to pay for it by law. I'm still gald they don't charge an arm or a leg... Hard to ride with only one arm.

I've already explained about fifteen times that insurance companies absolutely cannot frivolously charge whatever premium they want, but it doesn't sound like I'm going to convince you. Everyone is entitled to their own opinion.

Cheers!

[VifferFun]

Question. Why can't we cancel our insurance without penelty during the winter months?

The simple answer to your question is that you are essentially purchasing a policy for the summer months when you actually ride the bike. I think this simple analogy should help explain:

Suppose that it is January and you purchase an annual pass to ski at Happy Mountain as much as you like for the entire year. The pass costs $1200. That's a lot of money for you to shell out all at once, so you opt to instead pay in monthly installments of $100/month. You ski to your heart's content for all of January and February, but in March the snow all melts away. Since you are no longer able to ski (unless it happens to snow again), you go to the office at Happy Mountain and ask for a refund.

How much money do you think Happy Mountain will refund to you? By your reasoning, you think you should get $1000 back, since you only used their services for two months; however, what you agreed upon was skiing for the year at $1200. Happy Mountain was just nice enough to let you pay in monthly installment to ease the financial burden. Since you were able to ski for most of the season and there will be fairly few days left to ski, your refund will more realistically be less than $100.

Now, pretend that Happy Mountain is the insurance company and that the skiing pass is your insurance to ride . . . does this make sense now?

Really, I think that the reason that most insurance companies (with the exception of State Farm) make you pay the full motorcycle premium up front is so that they don't have to explain this to the thousands of policyholders who think they should be entitled to cancel their policy over the non-riding seasons.

Cheers!

[[evo]]

I dont understand why people cant grasp that concept.

The insurance company says "it'll cost 1000/month to insure you for that bike, but we know you can only ride for 3 months. Instead of hitting you for a lump sum of $3k, we'll let you pay over 12 months at $250 a month."

You agree, and ride happily for a 2 months then decide ridings not for you. The two months cost you a total of $500, half of just one month from your original quote.

When you call to cancel, they say ok, no problem, but that would mean you owe us $1500, the remainder of your two months insurance.


I don't understand people getting upset in these scenarios. These are terms you agreed to and should understand before doing so. And it makes perfect sense. Anyone who argues otherwise should also play the 'well i cant ride in the winter why should it cost the same as the summer mnths' card and completely shoot themselves in the foot.

[dcx135]

Viffer -

Just wanted to thank you for your thorough explanations.

After scanning through 18 pages of the back and forth banter, I've come to two conclusions. 1) you have the patience of a saint and 2) logic, stats and math skills are not strong points for some. I would have lost my patience to continue long ago!

Ciao!

[VifferFun]

I dont understand why people cant grasp that concept.

The insurance company says "it'll cost 1000/month to insure you for that bike, but we know you can only ride for 3 months. Instead of hitting you for a lump sum of $3k, we'll let you pay over 12 months at $250 a month."

You agree, and ride happily for a 2 months then decide ridings not for you. The two months cost you a total of $500, half of just one month from your original quote.

When you call to cancel, they say ok, no problem, but that would mean you owe us $1500, the remainder of your two months insurance.


I don't understand people getting upset in these scenarios. These are terms you agreed to and should understand before doing so. And it makes perfect sense. Anyone who argues otherwise should also play the 'well i cant ride in the winter why should it cost the same as the summer mnths' card and completely shoot themselves in the foot.

I posted this in another thread, but I think I will post it again since it also helps answer the winter cancellation.

If you want to think of your policy as paying by the month, the following is the premium that you would pay for each month of the year based on an annual premium of $1200 from State Farm (using their distribution of premium over the months of the year):

Jan: (0.02)(1200) = $24
Feb: (0.02)(1200) = $24
Mar: (0.04)(1200) = $48
Apr: (0.08)(1200) = $96
May: (0.12)(1200) = $144
Jun: (0.16)(1200) = $192
Jul: (0.16)(1200) = $192
Aug: (0.16)(1200) = $192
Sep: (0.12)(1200) = $144
Oct: (0.08)(1200) = $96
Nov: (0.02)(1200) = $24
Dec: (0.02)(1200) = $24

Total Annual Premium: $1200

Really, I think that is would be in State Farm's best interest to just charge the premium according to the monthly schedule above, then people can understand exactly how much they are paying to ride for each specific month of the year. State Farm is actually quite generous in that they even allocate as high as 2% of the premium over the winter months.

Cheers!

[VifferFun]

Viffer -

Just wanted to thank you for your thorough explanations.

After scanning through 18 pages of the back and forth banter, I've come to two conclusions. 1) you have the patience of a saint and 2) logic, stats and math skills are not strong points for some. I would have lost my patience to continue long ago!

Ciao!

Thanks, and no problem. I actually think that answering the questions in this thread is allowing me to develop professionally in my written communication skills. Learning how to explain somewhat complicated concepts in a simple manner is imperative to the success of an actuary, so this is helping me as well.

Cheers!