Risk e-Business

You Never Know Who's an Uninsured Driver

Here's an interesting twist to our recent post about uninsured drivers, and the need to adjust your insurance accordingly.

If you're stopped at a traffic light, and rear-ended by a $140,000 Mercedes, you probably don't expect that the driver is cruising around without insurance - but you'd be wrong if that driver was troubled Giants' wide receiver Plaxico Burress. Check out the details, courtesy of the Orlando Sentinel. 

Bottom line: you never know what kind of insurance "the other guy" has - so you need to need to protect yourself. 

Now, if that didn't scare you enough, think about this for a second: what if YOU hit a $140,000 Mercedes, and had only bought state minimum liability limits  of $25,000 property damage?

Beware: More Uninsured Drivers on the Road

M.P. McQueen reported in Wednesday's Wall Street Journal on the national trend of more drivers are letting their car insurance lapse because of the faltering economy. Doing this puts themselves and others - including you - at risk. 

McQueen did a good job highlighting the irresponsibility of not carrying liability insurance, and the importance of matching  your own liability insurance to the value of your assets. 

Maine law requires all drivers to carry at least $50,000  per person / $100,000 per accident of Bodily Injury coverage, and $25,000 of Property Damage coverage. It doesn't take much imagination to picture this limit as being inadequate to handle even a moderately severe accident, or replacement of even a mid-priced late model car. Once you blow through your insurance coverage, your assets are fully exposed.

Most people don't realize that the flip side of liability coverage is Uninsured/Underinsured Motorist coverage. This covers your injuries if you're struck by an at-fault driver who has no insurance, or less than you do. 

There's the rub: if you and the other guy both have state minimum limits, your UIM coverage doesn't apply, because you didn't have more than he did. If you suffer more than $50,000 of medical expenses (it doesn't take all that much - trust me), you're on your own. 

Although we're in the business of selling insurance, we understand that people have to live within their budgets and prioritize their expenses. If the economy forces you to cut your auto insurance expenses, we suggest:

• Look at your deductibles first. It might sting to pay the first $500 or $1,000 of repair costs after an accident, but at least it's a known cost, with a maximum out-of-pocket. 
• If you really need to cut auto insurance to the bone, consider removing physical damage (comprehensive & collision) coverage. If you have a loan or lease on the vehicle, you're not going to be able to do this. Also, if you don't have physical damage coverage on at least one car, you don't have that coverage if you rent a car either. But, desperate times call for tough decisions. 
• If you have more than one car, think about "laying one up". You can suspend coverage for the time it's stored. Just remember to call your agent before  you drive it again, because it has no coverage.
• Try to pay your auto premiums on time. Paying late can jeopardize your coverage, especially if you slip up and your policy actually cancels one time. The Maine Insurance Dept. has an excellent set of FAQ, one of which offers the same counsel.  

If you're fortunate, and in expense-maintenance vs. expense-slashing mode,  make sure that your liability coverage protects your assets, and your UIM coverage is adequate.  And regardless of the law, don't count on the other driver having insurance. 

Ice Storm Damage: Another Opinion

In case you didn't believe our recent posts about ice storm damage, here's corroboration from the State of NH Insurance Department and more from the Maine Emergency Management Agency. See, we wouldn't lie to you!

Remember, you may have purchased coverage that covers some damage that a standard policy does not. Be sure to check with your agent. Whether you had damage or not, now's an excellent time to think about buying such coverage if you haven't yet. 

Ice Storm '08: Is Your Damage Covered?

Northern New England was clobbered by an ice storm December 12 that closed schools and businesses (including ours) and knocked out power for over 200,000 Mainers. It brought back memories of Ice Storm '98, the effects of which are still evident in Maine's woods and the psyches of its residents. 

Like the '98 storm, this one left many people without electricity for several days - some are still without power 3 days later. Fortunately, this storm wasn't followed by the bitter cold of a decade ago, which seems to have spared many from the misery of frozen pipes. Nevertheless, our office has been busy fielding insurance claims and stories of misfortune.

Here are some of the most common situations we've seen, and how most insurance policies respond. Of course, this is general information and NOT to be taken to indicate coverage (or lack of coverage) for any individual. To find out if you have coverage, refer to your own insurance policy, agent and company. Also, remember that your property deductible (often $500 or $1,000) applies. 

• Tree falling on your house. Most homeowners policies pay the cost to remove a tree that damages a covered structure (including sheds, etc.), and the cost to repair the damage itself. 
• Tree falling on your car.  Your home policy doesn't cover this - but your auto policy might. The key is whether you have "comprehensive" (your policy probably calls it "other than collision") coverage on the vehicle. If so, do a happy dance.
• Water in your basement. We're talking about water backing up through a sump hole, usually because the sump pump stopped working when the power died. This one's far less certain. Homeowners policies don't cover this unless you buy extra coverage. Companies call the endorsements by different names, but if you've bought it, you'll probably see something like "Water Backup" or "Backup of Sewers and Drains". We've regularly recommended this coverage through newsletters, mailings and blog posts.
•   Frozen Pipes. The water damage from frozen pipes is covered by most homeowners policies. The cost to repair the pipes themselves is not. 
• Food Spoilage. This usually is covered only if you bought a special endorsement (it's often packaged with water backup coverage). Even with the extra coverage, it's usually limited to $500 or so.  
• Cost to rent or buy a generator. Sorry, this one's not generally covered. Even though you're getting the generator to keep you from having one of the other claims listed above, it's considered to be preventative (like having a smoke detector or fire extinguisher to prevent fire claims). 

These are just a few scenarios we've seen since Friday's storm. If you have questions about your individual insurance, refer to your policy or consult your agent (preferably, both). In a future post, we'll talk about how to prepare for some of these disasters, and what action you should take if it happens to you. 

Dealing with Increased Risk from Holiday Travel

As Americans take to the roads, rails and sky for the holidays, an alarming percentage don’t fully understand whether their insurance coverage adequately protects them, according to a new national surveyon travel insurance issues by Trusted Choice® and the Independent Insurance Agents & Brokers of America (the Big “I”).

For the survey, 1021 respondents were asked if they thought that their insurance policies would cover them against common travel risks, such as renting a car, luggage lost by an airline, theft of gifts from a vehicle, or medical expenses from illness or injuries when traveling. An alarming 30 to 75%, either didn’t think they were covered by their current policies in these situations or said they didn’t know.

We advise they consult with their agent to discuss their current policies and what do to in the event that they need to file a claim while on vacation. The good news for consumers is that homeowner’s insurance policies may cover lost property, car insurance policies often offer the option of rental coverage, and medical policies usually have clauses that explain where and when you are covered.

Trusted Choice^® independent agents provide the following tips for holiday travelers.

Lost Luggage

Although 75% of homeowners did not think or did not know if they would be covered in the event that an airline lost their luggage containing holiday gifts, most homeowners or renters insurance policies do provide worldwide coverage for most belongings. Additionally, some airlines do have reimbursement policies in the event that they lose your luggage. If you purchased the lost gifts with a credit card, you may have some level of protection with your issuers. Photographing the contents of your suitcase may also help in the event of a loss. Before purchasing baggage insurance, check your current policies. It may be a waste of money.

Renting a Car

The survey found that nearly one third of consumers do not think or do not know if their current policies cover them in a rental vehicle. Maine auto insurance policies provide protection for liability you incur for injuries or property damage you cause to others within the U.S. Driving a rental car is considered to be the same as driving your own vehicle for liability purposes. 

Liability Damage Waiver - It’s not usually necessary to purchase a Liability Damage Waiver from the rental car agency since you usually already have coverage under your own insurance. Always request a copy of the rental agreement to review ahead of time with your independent insurance agent. 

Collision Damage Waiver - Rental car agencies typically try to sell “Collision Damage Waivers” (CDW) for about $8 - $15 per day. These waivers are not insurance. In effect, a CDW is simply a promise made to the rental car agency that they won’t make you repair or replace a damaged or stolen vehicle. If you already carry collision and comprehensive coverage under your own personal auto policy, your insurance will extend to the rental car. Consumers need to carefully evaluate their existing coverage and discuss whether or not purchasing a CDW is appropriate for them. 

There may be gaps in the coverage your insurance policy provides for rental cars.  For example, many car rental companies may hold you responsible for the loss of use of a damaged rental car. Rental car companies may charge you the daily rental rate for every day the car is undergoing repairs. While many auto insurance policies will pay “loss of use” charges, those that do set limits. There are other expenses that most auto policies do not cover. One example is diminished value which can amount to several thousand dollars. Consult your independent insurance agent to find out what’s best for your travel needs.

When CDWs May be Appropriate -  There may be gaps in the coverage your insurance policy provides for rental cars.  For example, many car rental companies may hold you responsible for the loss of use of a damaged rental car. Rental car companies may charge you the daily rental rate for every day the car is undergoing repairs. While many auto insurance policies will pay “loss of use” charges, those that do set limits. There are other expenses that most auto policies do not cover. One example is diminished value which can amount to several thousand dollars. Consult your independent insurance agent to find out what’s best for your travel needs.

• Foreign Travel - As a general rule, when traveling to a country other than Canada and renting a car, you will have to purchase auto insurance in the country where you will be driving. Some personal umbrella policies may provide liability coverage for rental cars abroad; few will cover damage to the rental car itself.  Again, seek professional expert advice from an independent agent before you leave home. 

• Check the Vehicle -  An important way to protect yourself when renting a vehicle is to check over the car carefully for damage in the presence of a representative of the rental car company before you leave the lot and when you return it. Request all prior damages be noted in writing. Car renters have been known to receive damage claims from rental car companies weeks after turning in vehicles. There is no way to prove your innocence at that point. 

What if You Need Medical Attention Out-of-State or in a Foreign Country?

The survey found that more than 35% of respondents did not think or did not know if they were covered in the event that they became ill or injured no matter where they were located. Most individual and employer-provided health and medical insurance policies cover you when you are injured or become sick no matter where your injury or illness occurs for short recreational trips. In general, major medical health insurance plans sold in the U.S. will provide coverage for emergency medical services you require while traveling. Still, insurance companies cannot guarantee the quality of care that is available wherever you travel and some policies have territorial restrictions.

• Domestic Travel:  While the medical services provided in the U.S. may be among the finest in the world, not all facilities and practices may offer the standard of care or access to the latest medical technologies that you may expect.  Therefore, travelers should take some time to find out what is available in the area where they will be traveling and contact their independent insurance agent to assess just how well their insurance coverage will respond to medical emergencies away from home.

• Foreign Travel:  When evaluating insurance policies for a brief trip or extended stay abroad, it is important to understand any limitations in coverage that each prospective policy might impose.  For example, it is not unusual for "Foreign" (called foreign even though it’s purchased here at home) health insurance to exclude coverage for injuries that occur while participating in hazardous activities. Ask questions and understand exactly what you are buying and what is covered.

Medicare Consideration: Those who rely on the Social Security Medicare program should know that it does not cover hospital and medical services outside of the U.S. Before you leave the country, learn what medical services your health insurance will provide while you are abroad and consider the purchase of additional insurance protection.

Pay as You Drive (PAYD) Car Insurance

Many Mainers, especially retirees and those who bike, walk,  bus or live close to work, drive less than the average American. That's one reason Maine's auto insurance premiums are among the lowest in the country, despite our harsh winters. Still, many of our clients ask about discounts for driving fewer miles.

The idea appeals to our common sense, doesn't it? Even the Freakonomics guys agreed. Here's some of what they wrote in their April 20 column in the New York Times Magazine:

Imagine that Arthur and Zelda live in the same city and occupy the same insurance risk pool but that Arthur drives 30,000 miles a year while Zelda drives just 3,000. Under the current system, Zelda probably pays the same amount for insurance as Arthur.
While some insurance companies do offer a small discount for driving less — usually based on self-reporting, which has an obvious shortcoming — U.S. auto insurance is generally an all-you-can-eat affair. Which means that the 27,000 more miles than Zelda that Arthur drives don’t cost him a penny, even as each mile produces externalities for everyone. It also means that low-mileage drivers like Zelda subsidize high-mileage drivers like Arthur.

Every auto insurer in Maine uses the system described above. They ask how you use your vehicle, and give a small discount to those who tell them that they use theirs for "pleasure use" or a "short commute". 

But one insurer, Progressive, has introduced a "pay as you go" system they've dubbed "MyRate".  It promises discounts for driving fewer miles, not driving late at night, and driving defensively. Sounds good, huh? As with many seemingly simple ideas that appeal to our "common sense", the devil is in the details. 

Consider:

1. The program requires credible monitoring that yields reliable results. Progressive has developed a chip that you plug into your car's OBD (on-board diagnostic) port. The device monitors your speed, the time of day you're driving, and how many miles you drive. It's not a GPS - it doesn't report WHERE you are - but the amount of data it does collect and send to Progressive has given pause to some who are concerned with privacy in the digital age. 
2. Your insurance rates can also INCREASE if your driving habits change (new job? take up hiking or camping? new long-distance love interest?), or reflect a higher risk profile (kid starts driving?). While you can quit the program, if you stay with Progressive, they may use the data about you that they've collected when rating your future policies. 
3. The device costs about $30.00 to buy, and the premium quote you used to evaluate whether to buy the policy was only an up-front estimate. So, even if you thought that your discount would more than pay for the up-front cost, that can change (see #2 above). 
4. MyRate is currently not available in Maine. In fact, it's only available in 8 states, New Jersey being the closest. And, what we consider the biggest drawback of all... 
5. You can't buy a MyRate policy from an agent; the only channel where it's available is from Progressive Direct. This means that you're on your own in dealing with the insurance company if you choose to buy a policy this way. 

Maybe MyRate makes sense for you after reviewing the facts of the program. We do like some of the features. It rewards safer driving and less-risky behavior. It also rewards those who choose to drive less, which is good for the environment and for our communities too.  

What we don't like is that Progressive chooses to only sell the product directly to consumers. Of course, part of that is self-interest: we're insurance agents after all. If we don't believe we add value to the insurance transaction, then we should just wither away to extinction. But most Progressive customers agree, and prefer to buy from an independent agent. The vast majority of their business is produced through local agencies like ours.

Insurance is complicated enough; this new method offers its own twists, not to mention the privacy concerns mentioned above.  We wonder how many people will feel comfortable facing this new insurance model without a local professional to help, advise and advocate for them. Why not allow customers to use an agent to help them vet this model to see if it really makes sense for their situation?

Don't Fall into an Accident this Autumn

The leaves are turning, and many of us have begrudgingly turned up the thermostat for the first time since April or May. Every Fall, we see an increase in car accidents. Many of those are caused by the angle of the early morning and late afternoon sun, which coincide with commuting hours this time of year. 

Avoid "Driving Blind" by:

• Slowing down and increasing your following distance; 
• Wearing polarized sunglasses to reduce glare; 
• Keeping your windshield and wiper blades clean, and your washer fluid full; 
• Lowering your visor to help block reflected light; 
• Keeping your headlights on to make your vehicle more visible to others; 
• Taking an alternate route or delaying your trip to avoid driving into the sun; 
• Looking carefully for pedestrians and bicyclists in the roadway. 

Keep in mind that other drivers may not see you when the sun's angle is low. Be extra careful when pulling out of side streets or taking off from a stop sign. Drive safely!

Inheriting Property

Lately, several clients have asked us what to do with property that their recently-deceased parents owned. There are so many scenarios that it's hard to generalize, but at we see these three regularly.

• Parents' property is insured by our agency.
  When someone dies, their property becomes part of their estate. Most insurers will continue to insure a home in the name of an estate until the policy's next expiration date. In the meantime, they want to know that someone is looking after the property, of course, and protecting it from loss. Sometimes, the estate isn't settled before the policy expires. In that case, heirs usually purchase a new policy in the name of the estate, often with a surplus lines insurer.
  
  If the insured property is a vehicle, the insurance company will want to know where it's being kept, if anyone is driving it, and what the long-term plans are for the vehicle. They will make an underwriting decision accordingly.
• Parents' property is not insured.
  It's all too common for heirs or probate attorneys to begin the process, only to discover that one of the estate's largest assets, the home, is uninsured. Properties without continuous insurance pose higher risks to insurers, and given the circumstances, the insurer may only be called upon to provide coverage for a short time. In that case, it's very difficult to place new insurance in a standard insurance company. Often the only available market is a surplus lines company.
• The estate has been settled, and our client has inherited the property.
  If our client is the sole owner of the inherited property, that's easy: they simply insure it as they would their other property or autos. If they plan to use it as income property, they can buy a Dwelling Fire or commercial policy. If they intend to use it as a seasonal or secondary home, it can usually be insured on a personal policy.
  
  Sometimes the property is inherited by several members of the same family, or a trust. Relatively few insurers will provide a personal policy in the name of a trust, but some do. If siblings inherit shared ownership, the policy is usually written with all siblings added as "additional insureds". They all share the policy to protect their property interest and liability exposure.

Each estate situation is different. Be sure to consult with an attorney familiar with estate law, as well as your local insurance agent. Together, they will try to protect your interest and obligation in the property.

Off to College

This weekend, we move one of our kids back to college. He's excited to re-join his friends and regain his independence that was suspended when he moved back home for the summer. We suppose that there'll be some actual education taking place, too. It's a big change for our family, not to mention our grocery bill.

So what does an insurance agent do to his home and auto policies when his kid goes off to school? This year: nothing. Next year may be different. Here's why.

Home Insurance
Your homeowners insurance covers you and "members of your household". As long as he lives in a dorm and returns home every summer, he meets that definition - even though he's over 18 and a legal adult. So, his computer, TV and other stuff are covered by our policy. Our liability coverage also follows him - which is handy given the behavior of 20 year-old males sometimes.

Next year, he might do a semester abroad. Would our homeowners policy cover him then? Yes, as long as he still is a resident of our household (i.e. lives at home on school breaks and vacations).

What if he rents an off-campus apartment next year? Well, that probably changes the rules. If his name is on a lease; if he stays year-round in the apartment; or if he no longer lives at home, then he's not a member of our household. He needs to buy a renters' policy from a local independent agent. Cost: about $150 per year.

This fall, a new development in Portland called Bayside Village opens. They've been advertising on MTV, and set up a sales office next to a local pizza joint. It makes me wish I could go to college again! Bayside Village will house students from several local colleges. It offers access to public transportation and downtown Portland. Its furnished apartments include most utilities. It's a lot like a dorm, but is unaffiliated with any school. Our advice for clients: don't rely on your homeowners policy to protect you here - get a renters' policy.

Auto Insurance
Our son is not taking a car with him to school. Our insurer gives us a discount (or draws a little less blood) for this. We don't have to tell our insurer when he's home for the summer or on break, and using one of our cars. Their rates already presume that he's using our vehicles when he's home.

Two of his roommates have cars at school. What if he's successful in convincing us that he needs a car to "get a job", "get an internship", "come home for visits" or "get food"? Then, we have to tell our insurance company that he has a car at school. Adios discount, hola higher premiums!

What about that semester abroad? Would he be covered by our auto policy to drive a car in another country? Not on your life!

Keep in mind that your policies could certainly be different from mine. Contact your own insurance agent with questions about how to best cover your situation.

Car Sharing and Insurance

Our last post talked about a new condo development proposed for downtown Portland, ME that featured shared cars for unit owners. Coincidentally, Joseph White's column in today's Wall St. Journal discusses the growing appeal of car-sharing services like Zipcar. Essentially, it works like this: you pay a membership fee to join a service, which gives you access to several vehicles parked in various locations around larger cities. You reserve a car, pick it up at the designated spot, and pay only for the time, tolls and parking when you use it.

I've seen Zipcars in several major cities, and even a few in Maine (probably Boston folks escaping the city for the weekend), and some of them put my ride to shame. They have everything from Mini Coopers to minivans, SUVs to BMWs. The concept makes sense for non-car-owning city dwellers who need access to a good vehicle periodically.

Sharing ownership of anything doesn't always come naturally to many Americans. We tend to be picky about our "stuff" - especially our cars. What if the last driver left the car a mess? Or low on fuel? Or in the wrong lot? Who maintains the vehicles? Of course, the car-sharing services address these and other issues.

What about insurance? In our agency, we haven't actually seen a car-sharing contract, or been asked by our clients yet. However, our understanding is that at least one car-sharing company buys a blanket auto policy providing $300,000 liability coverage (much lower limits for those under 21), and assesses a $500 fee for damage you cause in an at-fault accident. Presumably, a condo association would buy similar coverage. Most insurers would be reluctant to insure lots of different unrelated drivers; they would probably charge more as a result. And, what if one of the condo unit owners was a poor driver? Would the other drivers have to pay more money for their exposure?

Another issue: many individuals have assets higher than $300,000. And Maine's Wrongful Death Statute allows up to $500,000 in damages per person, PLUS punitive damages. Many members, if they don't own other vehicles, may have no auto coverage of their own. They would be out of luck if an accident exhausted the $300,000 limit, and would be responsible for the remainder of the damages "out of pocket".

Possible solutions: One could buy a "named non-owner" policy, or a personal umbrella policy. How the latter would respond to a "shared car" situation is an interesting question that has (to our knowledge) not been presented.

Sometimes, societal changes happen faster than the insurance industry can react, but the industry's mission is to help the public manage risk. Car sharing services are gaining in popularity. It's a matter of time before personal auto insurers develop procedures for addressing the exposures they present. We suggest that you confer with your agent if you are thinking about joining a service.