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When times were less civilized, people used to pay fortune-tellers to predict the future. Will a tall, dark stranger come into your life next week? Will you win more than you lose in life’s game? Although the modern actuaries may not be quite so good on the hair color of the people you will meet next week, they are very good at estimating a whole range of things about your life. As a driver, they can estimate the risk you will have an accident during the next year. As a home owner, they can predict the probability you will suffer a burglary. Depending on your health record, they can suggest the diseases and disorders you are most likely to catch. They are experts on life expectancy. So, when it comes to setting the premium rates for whatever policy you are proposing to buy, they have already placed you in a group.

At this point, we need to refer to the National Health and Nutrition Examination Survey which, among other things connected with the health of the nation, monitors body weight. The results of the most recent survey show that almost two-thirds of all Americans are overweight and about one-third are considered clinically obese. Should the present rate of increase be maintained, the entire population should be considered obese come 2050. Except, of course, there will always be some who insist on being thin. Why should this matter? Because obesity has a direct bearing on life expectancy. The heavier you are, the shorter your expected span of years. Worse, as the weight rises, so do the chances of long-term illnesses so, even if you do continue life, it may well involve long-term nursing care.

Not surprisingly, one of the standard questions to resolve while the insurers decide whether to issue a policy and, if so, at what premium rate, is your weight. Although simply carrying an extra few pounds is not a pre-existing medical condition, the moment you admit an above-average body mass index for your age, the medical exam will become more thorough. There will be particular interest in the level of cholesterol and other lipids in your bloodstream, and then tests over time to discover whether your blood pressure is rising, whether your arteries are hardening and whether the first signs of heart disease are present. The more serious any symptoms, the less likely it is the insurer will agree to insure you, or the insurer will only offer a policy with a higher than expected premium rate. (more…)

Insurance is all about the numbers. If the evidence proves there’s a higher risk, you pay a higher premium rate. This can be a judgement about the quality of your driving. Perhaps your eyesight is poor or you are epileptic. Whatever the reason, you are potentially dangerous on the road and, if the insurance company discovers this fact, it will either cancel your policy or demand you pay an extravagant premium. More often, the problem is with the vehicle itself. It may be a target for every car thief in your neighborhood, or it may roll over if you corner too fast. The actuaries collect details of every recorded accident and can tell you which makes and models are most likely to be totaled and why.

Every year, groups publish lists of unsafe vehicles. The government runs crash tests and liaises with manufacturers to decide when unsafe vehicles must be recalled. As will be obvious from the problems with Toyota, this process does not always work as well as it should. There are also independent groups that analyze the data and tell you which vehicles to avoid. In the most recent surveys, it seems the quality of the vehicles manufactured by US companies has been improving. If you go back twenty years, US quality fell off a cliff, allowing both European and Asian companies to get an ever stronger foothold in our markets. Now Consumer Reports confirms a significant improvement. In performance and reliability studies, Ford has emerged with vehicles to match those designed and manufactured by foreign companies. Sadly, General Motors and Chrysler continue to make the worst. In making this judgement, the Consumer Reports assessed both physical safety and value for money. If a vehicle is expensive to buy, maintain and fuel, it will be rated badly. So many trucks and SUVs are very poor value but equally, very safe because there’s a lot of metal between you and all the other vehicles on the road. Unfortunately, even though something like a Jeep looks cool, it’s unreliable and costs a small fortune to run. It’s the same when it comes to the Cadillac Escalade and many of the Chevrolet brands. They have been rated as the worst cars on the road for some years. (more…)

This is not like buying a car. When you are shopping around, you never intend to keep the vehicle for more than a few years so, if you make a mistake, it’s something you can put right as soon as your family finances allow you to trade in the first for a better replacement. But when you are looking at the possibility of buying insurance for your life, this is something you may keep for a long period of time. The problem is easily stated. What may look a good deal during your twenties may not look such good value as you pass your eightieth birthday. We can always be wise after the event. The question is how to make the best decisions when the future is uncertain.

The first question, of course, is who to ask for advice. Let’s state the obvious. Anyone employed directly by an insurance company is only going to sell you the policies available from that company. If you go to the average agent, they will be earning a living on the commission earned from each sale. So they will always try to sell you the policy giving them the most commission. In other words, you are not going to get objective advice. How can you tell whether the advice you are receiving is biased. One test is whether the advice is being offered without you having to pay. For example, you might ask your accountant or attorney for advice. If your professional advisor bills you for the time and offers a range of options for you to choose between, this is likely to be free from any conflict of interest. If you are in doubt, you should ask for formal written confirmation that your professional is not going to earn a commission should you decide to follow one of the recommended options. Or you should ask for disclosure of the amounts of commission to be earned from each of the options. If your professional refuses to answer, this suggests he or she is biased but does not want to admit it. As an aside, the European regulators require agents to disclose the amount of commission they will earn. This protects you, the consumer, giving an insight into the extent of any bias in the advice. Sadly, we believe in commercial secrecy. This leaves only one thing certain. If you ask a commission agent how much insurance to buy, you will always be given the highest possible number. (more…)

Back in June 2010, a special-interest Proposition 17 appeared on the ballot papers. It was pushed through the electoral process by Mike D’Arelli of the Alliance of Insurance and Brokers. Before it got on to the ballot, there was a court case – a rite of passage for anything affecting consumer rights in California. Both the “for” and “against” camps pushed for changes in the wording of the proposition and of the rebuttal. Judge Allen Sumner tweaked the wording on both sides leaving no one satisfied, but the Proposition went to the voters. There was a major advertising campaign paid for by Mercury Insurance. It’s estimated it provided a war chest of $16 million. There were ads everywhere and, when the dust had settled, the Proposition was defeated by 52 to 48% – not the most convincing of rejections. So what’s the issue?

Mike D’Arelli argues insurers should be allowed to look at your past coverage history to decide on the premium rate. So, for example, if you currently enjoy a loyalty discount from your current insurer, and you are looking around the market to decide whether to switch, all potential insurers should be allowed to match that discount. The expectation is that this will improve price competitiveness and, in the long run, reduce rates for drivers. But, let’s say there’s a gap in the coverage history. Perhaps you moved into an inner city area where it was inconvenient to garage your car and there was good public transport. Giving up your vehicle while living there looked at good option. From the point of view of insurers, this means you are losing experience. When you practise a skill every day, you consolidate what you know and adapt to the evolving behavior on the road. Take a break and there’s a slight increase in the risk of an accident while you get back into the groove.

The “no camp” seized on this as an excuse to raise premium rates during a recession without having to explain or justify premium hikes. Young drivers going off to college, members of the military going overseas, and seniors could all face rate increases if there was a gap in coverage. This could be hundreds of dollars at a time when everyone was facing financial hardship.

Well, Mike D’Arelli is back again with a newly worded initiative. He claims to have listened to all the objections raised last year. The new wording will ensure more people see rate reductions than increases. If this survives a review by California’s Attorney General, the next step will be collecting half-a-million signatures from registered voters to qualify for the next ballot. (more…)