Being innocent no excuse when car insurers set rates

Consuming Interests

May 01, 2007|By Dan Thanh Dang | Dan Thanh Dang,Sun Columnist

So your car is sitting in a parking lot somewhere when some bonehead sideswipes it, leaving behind a major dent and no contact information.

Patti Flowers-Coulson suffered such a hit-and-run in September after parking her blue Subaru Forester at an MTA lot in Owings Mills. Only she didn't realize it right away. She discovered the dent in the passenger-side fender two weeks later.

Flowers-Coulson, after much debate, decided to call her insurer, Erie Insurance Group, to discuss the possibility of filing a claim. Believing that the not-at-fault claim would not affect her rate, she went ahead.

Fast forward a few months and wham-o, Flowers-Coulson is notified that the $1,200 that Erie paid to fix the car caused her to lose part of a discount she received for long-term, claims-free driving. The overall effect? A $12 increase in the annual rate.

"I feel a little silly complaining about it since $12 is not a lot of money," the 47-year-old community college teacher from Towson said. "But they said it wasn't going to affect my rates. I felt so blindsided.

"My husband told me not to submit an insurance claim because he didn't want a rate increase," she said. "But my mother said, `Call and ask.' ... So is my husband right in his philosophy that we should never submit a claim on any kind of insurance unless it's catastrophic?"

To claim or not to claim - that is the question.

I've got two answers, the legal response and the real world response. Neither are absolutes, however.

Legally speaking, no matter how large or small the loss, you should call your insurance company to inform them about an accident.

This is especially important if another vehicle is involved. Insurance companies are not fond of surprises. If your company finds out about the accident through the other driver or another insurance company, it won't be happy.

Such unhappiness could result in a rate change down the road with your name on it.

Or, let's say you strike a deal with the other driver to take care of damages without notifying insurance companies. If that driver later reneges by demanding more money and you didn't get a signed agreement absolving you from future claims on the same accident, your insurance company might not come to your rescue.

With that said, tread carefully when filing claims.

If the accident is not your fault or the person at fault is unknown, think hard before you call. The reality is that regardless of the cause, experts say if there isn't a known at-fault person that the company can go after to get back the money it paid out, your claim will likely cause your premiums to increase.

In fact, if you file three not-at-fault claims within three years in Maryland, an insurer can cancel or decide not to renew your policy, since "there are costs for an insurer associated with these claims," said Darlene Frank, spokeswoman for the Maryland Insurance Administration.

"The number of claims you file does affect the rate, that's true," Frank said. "We're not a prior approval state, so insurance companies don't have to get our approval before they change your rates."

What that means is that any type of claim can affect your rates, essentially.

If that sounds grossly unfair, Mark Savage agrees with you.

"It makes no sense to have a situation where somebody purchases a product - in this case, insurance - and there is a penalty for using it," said Savage, senior attorney for Consumers Union, the New York-based advocacy group.

"The system is not working properly if it's based on an idea that if you use the product, you're going to lose it or your rates are going to go up," he said. "Even though they didn't do anything wrong, many consumers don't call a claim in and absorb the loss themselves. It's not fair.

"Nevertheless, that is the reality of the situation in many cases," Savage said.

Those days of believing that insurance is there to make us whole again when things go wrong are over. It's simply not the case. As Erie spokesman Mark Dombrowski said: "Insurance policies aren't designed to be maintenance policies."

Flowers-Coulson says that by no means has she ever treated her insurance policies so casually.

In the 15 years she and her husband have been with Erie, paying about $1,300 a year to cover two cars, they've only filed one other claim - in 1999, when she was rear-ended. In that incident, Erie went after the other party's insurance to recoup $8,000 in damages.

Dombrowski declined to discuss Flowers-Coulson's case because of privacy reasons, but he did explain how premiums are set for customers.

Basically, the Pennsylvania-based insurer offers customers a variety of discounts to lower premiums. If you're 55 or over, have multiple cars, have passive restraints in your cars, use anti-theft devices, have anti-lock brakes or multiple policies with the company, you qualify for several discounts.

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