Let's say you buy a service from someone. For this service, you have to pay $50 per month, and get nothing in return except a piece of paper saying that you've bought the service. Then one day, you need to actually use the service that you've been paying for. What if there was a pretty good chance that the service would simply refuse to provide that which you've been paying them for, and not using, all along? OK, assume for a minute that they do agree to provide the service you've been paying for, but then, on your next statement, they've doubled your monthly fee to $100, for no reason other than the fact that you used their service, which you had been paying for all along without using. Wouldn't you think you've been had? Doesn't that seem like a scam to you? It does to me, too. But, apparently, it doesn't seem like a scam to the DMV, which requires us to pay for this “service” in order to drive a car. If you haven't guessed, I'm talking about car insurance.
Think about it for a moment; you pay your car insurer a monthly premium to do absolutely nothing. And, when you actually need to call on them for the service they provide, they raise your rates in return. You pay them to do nothing, then have to pay them more if they do something. How is this any different from a mafia protection racket?
Case in point: my story. My story is not a horror story by any means, but it none-the-less demonstrates what I'm talking about.
Example #1: They want it both ways. In 2004, I was having problems receiving my mail. I routinely missed my insurance statements from Geico, only to receive a “cancellation warning” later on, at which time I would immediately pay. These cancellation warnings always came in a bright pink envelope that said “cancellation warning” right on the front. Once, before heading out of town for a few days, I received a letter from Geico, in a plain white envelope. I thought, “There's my insurance bill, I'll pay it when I get back”, and I set it aside. I didn't open it. That was my mistake. In this case, the envelope actually contained a cancellation warning that my insurance would “lapse” if I didn't pay in the next 5 days. On my way back from my trip, which was more than 5 days later, a minivan on the freeway in front of me had one of its rear windows shatter, randomly. The glass fell to the roadway, then bounced up and cascaded over the front of my car, covering the entire front end of my car with hundreds of tiny nicks and scratches. I put in a claim with Geico, who denied the claim because my “policy had lapsed due to non-payment”. Make a note of that, Geico denied my claim due to policy lapse from non-payment. Fast forward 5 years. I accepted an offer from Progressive to replace Geico as my scammer of choice. Because of my earlier experience with Geico, with their policy lapsing due to non-payment, I didn't hurry to inform Geico that I had found a new provider. My policy had reached the end of it's term, and I was simply not going to renew. Well, I got a notification of Geico that my payment was late, so I called them. I told the person on the phone that I hadn't payed for a reason, because I wasn't renewing my policy. They then sent me a letter in the mail billing me for the few days that had passed from when my policy ended, up until I had notified them I wasn't renewing, claiming that they had “extended my coverage as a courtesy, pending payment”. Where was this “courtesy” 5 years before, when an incident leading to a claim had occurred mid-policy term, but a couple of days after my payment was due. As I said; Scam. In two identical cases, they reacted in opposite ways, according to what would cost them the least/make them the most money. In one case, with a lapsed policy, they denied a claim. In another case, with a lapsed policy, they tried to charge me for pro-rated “courtesy coverage”. Which is it? You either can't charge me beyond the end of my policy for some BS “courtesy coverage” after I let it run out in 2009, OR you owe me for that claim in 2004 that occurred when my payment was late.
Example #2: Insurance companies punish you, monetarily, if you damage your car while avoiding a more serious accident that could've been charged to a different insurance company. 2 years ago I was leaving a hotel in Las Vegas, traveling down the spiral parking deck. At one point, a car that was driving much too fast, which was also halfway into my lane came careening blindly around the corner, apparently oblivious to my presence. By some miracle of quick reaction time, and good driving instincts, I managed to swerve enough to avoid colliding with this car head-on, and to avoid plowing into the parked cars that lined the wall on the opposite side of my car. Unfortunately, I wasn't perfect, because my rear passenger side fender clipped a concrete pillar, scraping it badly. Since I've kept my car in such good shape, and since I still had comprehensive coverage on the car, I decided to go ahead and shell out the $500 deductible and get it fixed. As it turns out, since I failed to involve the other driver, this claim counted as an at-fault accident against my rates. Basically, my insurance told me, if I'd gone ahead and had the head-on collision, I would have been better off, financially, because the other driver's insurance would have been responsible for the repairs to my car, with no rate increase on my insurance. But since reflexes had gotten the better of me, and I had avoided the more serious, probably injury inducing crash, it was going to cost me. So, in this instance I was penalized for being a good driver.
Example #3: It doesn't add up. Geico raised my rates due to claims on my account, but it doesn't add up. I estimate that I payed Geico roughly $10,000 in premiums over the 7 years they provided coverage for my car. If I add up all the claims I've made on that coverage, it comes out to around $6-7 thousand. So, they've made a huge profit off my premiums, even considering the claims I've made, yet they still raised my rates. First of all, explain to me how I benefited from paying a company $10k to cover $7k worth of expenses? Explain to me how would have benefited to pay this company $10k to do absolutely nothing if I had made no claims, as I would've been required to by law? Financially, I would've been better off taking out personal loans to repair the damage to my car, rather than paying an insurance company for all those years.
Example #4: Sneaky Terms. Some of you might be wondering why I kept comprehensive coverage on my car for so long. Well, it was because it provided what I had thought was an excellent benefit in my particular policy: Mechanical Breakdown Coverage. My policy provided was amounted to an extended warranty on my car, covering the cost of repairs for simple mechanical breakdowns. I used this coverage once, to cover the cost of replacing my air conditioner compressor when it went out in the summer of 2007. What Geico didn't tell me: Claims made to this “coverage” were treated as at-fault accidents when it comes to calculating rate increases. This, more than any other example, convinces me that these insurance companies know what they're doing when it comes to squeezing more money out of their customers. Making uses of this coverage count as at-fault accidents is a blatant case of punishing the customer for daring to use the service they've already paid for. What if you had a gym membership that cost you $50/month, but only if you never went to the gym? Then, if you actually went to the gym, they raise it to $70/month? I bet you would cancel your gym membership, right? Well, what if you were required by law to buy that gym membership? That is what car insurance is like.
I can get on board for making car insurance free until you have to use it (instead of paying the insurance company to do nothing), then charging a high monthly rate once you've been in an accident that is your responsibility, until you've paid them back. Then it should be free, again.