Auto insurance explained, Q&A welcome

[g6civcx]

The purpose of this thread is to explain auto insurance and answer any questions. This won't be nearly as controversial as some of the other threads. There are a bunch of other people in insurance as well so their experience will be appreciated.

I used to be a claim adjustor for a major auto insurance carrier. Now I do legal work for some of the largest insurance portfolio in the world.


Insurance is not complicated but not simple either: Insurance - Wikipedia, the free encyclopedia


Generally, there are several key factors associated with property and casualty insurance:

1. You have something worth $x.
2. There is a y% that something will happen, where 0<y<100.
3. You pay an insurance carrier a premium $z.
4. When the bad thing happens, the insurance carrier will pay you enough to bring your property back to $x.

It's simple, but if you're missing any of these elements then it's no longer considered insurance. For example, insurance protects something that has a risk of happening. If there's 100% chance that you will crash (like fraud), this is certainty and there is no risk = no insurability.

Let's discuss how each factor is analyzed:

1. This is most often done with a book. If your vehicle is a classic or highly modified, you will need an appraisal. 99% of cars' value will be based on book value.

2. The insurer will only insure against certain risks, like accidents. Most insurers will not insure against intentional fraud. This area is highly regulated by state law.

In order to gauge the risk of an accident, they look at everything: criminal history, driving record, credit report, employment history, age, sex, gender, location, income, mileage, year/make/model, etc. Every company has a unique algorithm to determine risk based on hundreds of thousands of variables.

3. Insurers insure large numbers of people. Statistically, not everyone will have an accident. By spreading the risk over the large population, any one person will be covered by the group. The premium is calculated based on your risk profile and what the insurer needs to cover its costs.

4. This is highly regulated by state law. Generally they will pay you up to 80% of your car's pre-accident value. Anything over that is considered a total loss and they will pay you the book value of the car.


What you can do to save money on car insurance:

1. Be aware of the car you drive. Year/make/model/mileage is the single most important variable. Beware of optional equipment as well. Generally the more expensive the vehicle, the more it will cost to insure.

2. This area is intuitive. Stuff like keep a clean driving record, go to your court dates, etc. But there are also stuff like cleaning your credit report, fixing your DMV record, paying back taxes, etc. anything that can stay on your record. All these things affect what insurers perceive as your risk profile.

3. Figure out what each line coverage means and determine if you truly need them. There are 3 major coverages:

liability - pay other for your mistake
collision - pay you for others' mistake
comprehensive - pay you when your vehicle is parked

Picking the right coverage needs to be discussed with your insurance agent. It boils down to how much risk you're willing to take, and how much you're wiling to pay based on what you're covered for.

4. Filing a claim is a different process than underwriting and I will save that for later.


As you can see, there are hundred of thousands if not millions of variables for each person. Each insurer has a computer that calculates the premium based on your coverage.

That is why it is not beneficial to ask people what they pay for insurance. What others pay has no relevance to you whatsoever because there are so many variables that are different between each person. The only thing that matters is how much they charge you based on the coverage you want. Just because one company is cheaper for someone else doesn't mean that company is cheaper for you.


Short thread, I know, but not too much is known about how each company rates people.

Any questions on why you pay what you pay for insurance?

[Future240]

My father insures my car. Before I had a 1989 jeep cherokee, now its a 1988 Maxima he said before I got on the insurance his bill was like 150 for my mom's 02 altima, and his 05 silverado, my part of the bill with good student discount is 535 every 6 months. I have a fender bender ticked that comes off my record in december.

If/when I do get a 240 more than likely 95, what will insurance look like?

Do things like defensive driving classes, and things of that nature actually have a significant impact on insurance?

[cali240sxdrifter]

I need to do a comprehensive claim with my S2000... This is the second time they slash my top... My insurance doesn't go up if I do a comprehensive claim right?

[g6civcx]

Originally Posted by future240

My father insures my car.

First, let's the the terminology straight. You can be self-insured, which means you don't pay an insurance company, or you can be insured by a licensed insurance company.

By saying your father "insures" your car, you're saying he's responsible for paying. This is not quite correct.

You should say your father is the policyholder, and he lists your car on the policy to be insured by the insurance company.

Originally Posted by future240

Before I had a 1989 jeep cherokee, now its a 1988 Maxima he said before I got on the insurance his bill was like 150 for my mom's 02 altima, and his 05 silverado, my part of the bill with good student discount is 535 every 6 months.

Once a bunch of drivers and cars are lumped into a policy, it's very difficult to know what each driver and each car is paying. Everything is related and you may pay more or less under your own policy.

Originally Posted by future240

I have a fender bender ticked that comes off my record in december.

FYI, convictions NEVER come off your record. They may come off your DMV driving record, and by law in some states the insurer cannot consider driving history past a certain period in time, but generally, once the insurer knows about your record, you can be sure they will never forget.

Originally Posted by future240

If/when I do get a 240 more than likely 95, what will insurance look like?

Originally Posted by g6civcx

Every company has a unique algorithm to determine risk based on hundreds of thousands of variables.

As you can see, there are hundred of thousands if not millions of variables for each person. Each insurer has a computer that calculates the premium based on your coverage.

The short answer is no one knows until they run your profile through the computer algorithm. Underwriting a policy and calcuating the premium is EXTREMELY complicated.

So sorry, I can't give you answer because no one knows.

Originally Posted by future240

Do things like defensive driving classes, and things of that nature actually have a significant impact on insurance?

Maybe. Some insurers take classes to mean that you're trying to learn and improve. Others may think you're trying to cover up.

It's totally dependent on the individual insurance company.


These questions are better suited to be directed at the insurance companies themselves when you're shopping for quotes. It's like you're asking me how much McDonald's and Wendy's charge for a cheeseburger. You're better off asking the vendor directly.

[g6civcx]

Originally Posted by cali240sxdrifter

I need to do a comprehensive claim with my S2000... This is the second time they slash my top... My insurance doesn't go up if I do a comprehensive claim right?

Yes and no. There are 2 competing theories:

1. People who filed claims in the past tend to file claims in the future.

2. Claims are filed randomly, and past claims do not predict future claims.

There are thousands of research papers that talk about both theories.


Insurance companies subscribe to one or the other, and sometimes both.

So depending on which theory your company subscribes to, your premium may or may not go up.


This question is better suited to be directed at your current insurance carrier so you know before you file a claim, but be warned that the typical claims rep won't know the answer. You will need help from underwriting.

[cali240sxdrifter]

This will be my very first claim on my car for almost 4 years... I have police report for the first soft top slash, but I had min. insurance coverage, so I didn't call my insurance company. I then up the insurance on my s2000 to comprehensive a few weeks later.

Now 5-6 months later, happens again. Police report and everything.

[g6civcx]

Originally Posted by cali240sxdrifter

This will be my very first claim on my car... I have police report for the first soft top slash, but I had min. insurance coverage. I then up the insurance on my s2000 to comprehensive...5-6 months later, happens again.

Do you have another question? Thanks for the facts, but I thought I already answered your question above.

[cali240sxdrifter]

just making the story clear if it changes anything, thanks brotha

[g6civcx]

Originally Posted by cali240sxdrifter

just making the story clear if it changes anything, thanks brotha

It depends on your insurance company. Sorry I can't answer any more than that.

[driftphenom]

so, essentially this thread is useless. your saying there are so many variables that each situation is unique and must be dealt with individually. thus making any question answerable with : "every insurance company is different, blah blah blah" what im saying is generally correcty, no? wouldnt it been easier to say " never ask questions about insurance." and then expalin why. and instead of replying with the same answer to every question, you could give the info upfront and save everyone time, including yourself. thx and have a great day

[aznpoopy]

the thread is about understanding the insurance theory and general practices of insurance companies.

the thread is not about what will my insurance company do in this situation for me under my coverage. while g6 could probably give you a general guideline as to what various insurance companies could do, for specific answers those questions would be better directed to your insurance company than a random person on the internet.

[g6civcx]

Originally Posted by driftphenom

so, essentially this thread is useless. your saying there are so many variables that each situation is unique and must be dealt with individually. thus making any question answerable with : "every insurance company is different, blah blah blah" what im saying is generally correcty, no? wouldnt it been easier to say " never ask questions about insurance." and then expalin why. and instead of replying with the same answer to every question, you could give the info upfront and save everyone time, including yourself. thx and have a great day

While I share your frustration, and believe me when I say all insurers should act in a uniform manner, the bottom line is this.

I can tell you what should be done; however, I cannot tell you what is done. See the difference?

How would I know what someone else should do? I can tell you what the law is, or even what the industry guideline is, but it is up to each individual company to deal with their customer.

That applies to every industry.

Pretend you have an engineer who designed some of the parts on the GT-R. Would you ask the engineer how much a GT-R cost? Wouldn't you be better off asking your dealer?

And if the engineer does not know how much the GT-R cost, and does that make the engineer completely ignorant on how the GT-R works?


So far every question that was asked was how much the premium would be. The premium depends on each insurer, just like the cost of the GT-R depends on each dealer.

There is so much more to insurance than just the premium, and while how each insurer implements the process is different, the process in general is the same.


So while most simple questions about premium cost should be directed towards the insurer, I put the burden back on you. Do your research. Think of more complex questions to ask. Don't just ask how much coverage costs.

Things like what is actually covered, how a claim is processed, what happens for during a total loss claim, so on and so forth.

So far nobody has asked any of those deeper questions. We're just barely scraping the surface.


So I put it back on you. The sophistication of the question is lacking. Therefore the quality of the response is lacking.

I have many years in the industry. I can answer most question directed towards what should be done, but not what actually is done.

Can you predict the future by being able to say what each person would do? Can anybody?


Also, anyone else who can answer the questions much better are welcome to contribute.