Saturday, June 13, 2020

Two Views About Insurance

You can view insurance as a necessary evil, or as an all-expenses paid vacation to Bali.   The latter approach is more costly, though.

Growing up as a teenager and 20-something, I viewed insurance as a necessary evil - the State of New York required we have it, so we had to pay for it. And since I drove like a typical 20-something idiot (hint:  Save a lot of money and don't do that), I ended up paying a lot for insurance.

If you think about it, insurance wasn't such a good deal for someone in my shoes.  It provided liability coverage, for sure, but since my assets were effectively zero, if I was in a wreck, I would have nothing to lose.  In that situation, insurance protected society, not me.

Even collision and comp insurance protected the bank that loaned me money, not me.  If I wrecked my car, I would be out a car, and the car loan paid off.  If I had no collision insurance, I would be out a car, and the loan company would have to come after me, and since I had no assets, tough on them.

Oddly enough, as we get older, we do have assets to cover, and insurance becomes more important and the cost actually goes down, only because we become more "mature" and have bought into the system and realize that driving like a jackass isn't getting us anywhere faster.  Not only that, after you've been to a few funerals or seen friends crippled by car (or motorcycle) accidents, you realize that life is pretty frail.

But still, insurance is an annoying expense, and for people like me, an expense to be minimized.

Others take a different tack.   Insurance companies have to market themselves to people to get their business.   For people like me, price is king - dollars in premium versus dollars in coverage.   I am not as interested in fancy jingles, a friendly agent, or "service" whatever that means.   Others look at insurance like a menu from a Chinese restaurant.  "I'll file a claim in Column A, and have a side order of Column B".

I first ran into this on a BMW forum, and the postings were likely mostly from shills.  They would gushingly report wrecking their BMW as though it was a spa vacation.   The car was whisked away by the tow truck, and they were given a better car as a rental, while their existing car was painstakingly rebuilt, nut by bolt, over a period of months.   They saw a doctor, had a massage, and I guess even their nails done. "They covered everything!" they gush, "Acme insurance is the BEST!"

No shills there, eh?

Others would bitch about their insurance company.  "The rental provided was a crummy Lexus E350 - not even a BMW!" (and you wonder why people think BMW owners are jerks!).    In their mind, the real point of insurance was "what you get" when you wreck your car, not the thousands of dollars you pay into the system.  They seem to fail to see the connection between the two, either.

You see this in boat forums, too.  Some insurance companies offer "full replacement" coverage for boats and cars, so if you wreck them within a certain time period (usually a year) you get a brand-new boat or car or whatever.   This is, of course, an incentive to sink your boat or set fire to your car, if you are upside-down on the loan.   Not surprisingly, such policies aren't cheap.

People who look at insurance with this view in mind tend to obsess about trivial things in their lives, like the car in their driveway, and not the house, their investments, and their open-ended liability.  They will shell out thousands a year for low-deductible (or even no deductible!) coverage, glass coverage, free rental car, uninsured motorists, etc., but won't bother with a simple umbrella liability policy.   Go Figure.

A recent article online illustrates the point.  The article is nominally some sort of listical about the "Best Insurance Companies!" and fails to mention the most fundamental feature of any insurance policy - how much insurance you get for your dollar.  Rather, they talk - in gushing terms - about how great the "service" is from the company (an entirely subjective thing) and all sort of spa-treatment-type things that will happen when you wreck your car.   Likely, the insurance companies paid to be listed there.

It is a Money Magazine article, of course!

Down at the bottom of the list, they finally break down and admit the two largest (by far) car insurance companies are State Farm and GEICO.   I've insured with both, but today I am with GEICO, because to me, the bottom line is amount of insurance per dollar of premium.  Which is why I dump junk (in my opinion) coverage such as uninsured motorists, medical, towing, rental car, and so on and so forth.  Just liability and collision/comp (only because the cars are still somewhat worth something - eventually I will drop even that).

State Farm was more expensive, but they are popular because, well, check you pulse, you may already be a State Farm Agent and not even know it.  They have been minting agents at an alarming pace, and trying to become something called "State Farm Bank" too.   So like GM, who relies on an oversized dealer network to pawn off cars on people, State Farm sells a lot of insurance because they have a lot of agents.  Their online presence?  Well, not so hot.

Agents who are paid commissions and have overhead - adding to cost, which makes them more expensive than GEICO's online method of doing business.

As for the others?   Cutsie ads and Cosplay characters and advertising jingles?   Progressive?  They  used to be the insurance company of last resort for bad drivers (like "General" insurance).  Farmers?  I doubt they've insured a farm in years.

It comes down to cost, in my book, and if any of those companies can undercut GEICO then I would surely switch.  But I doubt they could, as most advertise to me with come-ons like, "You could save $500 on your insurance if you switch!" which would be a neat trick, as they would be paying me to insure me if they could knock that much off my GEICO bill.

To me, insurance is a necessary evil, something that hopefully will help you recover some of your loss if something bad should happen.  Expecting to be made whole, even if you buy cradle-to-grave coverage, isn't likely to happen.   After all, if you wreck a five-year-old used car, all they are going to pay you is the "book value" of a five-year-old used car, not what you owe on the loan, what you think it is worth, or what it will actually cost you to get a replacement vehicle.  And "book values" can vary all over the place, too.

So I go for high deductibles, which means no nuisance claims for the insurance company, which means they can lower their costs, which means I pay a lot less in premiums.  I save more on premiums over a decade than any delta in payout from a wreck or other claim.   And according to the insurance companies, you can expect to be in some kind of wreck, every 11 years or so.

It is akin to my friend who pays $1000 more a month in premiums on health insurance to avoid a $10,000 annual deductible.  He pays $12,000 a year to save $10,000 a year.  His wife argues, "well suppose you get sick?  Where would you get the $10,000 for the deductible?  These are college-educated people, too.    You see how the system works - they get you to be afriad and once you live in fear, you'll hand over your paycheck to the insurance company, the extended warranty company, or the local gun shop.

Fear is never an emotion to be trusted, nor is it a good way to shop for anything.