Auto & Home Insurance Companies: the Good, the Bad, and the Ugly?

Everyone wants a good price on auto & home insurance. But people also want to avoid the bad insurance companies that deny claims all the time. An affordable price for your car insurance and homeowners insurance is important, but you also want to choose a company that pays claims and does not hassle you.

Some people believe all insurance companies want to sell insurance, but none want to pay claims. Other people think some insurance companies are honest and pay claims, and other companies are dishonest and weasel out of paying legitimate claims. Some people think bad insurance companies automatically deny any claims over a certain dollar amount.

Many car & home insurance buyers have misconceptions about insurance companies, leading them to make mistakes they regret when they have a claim. This blog post will tell you about these misconceptions and mistakes, how to avoid them, and how to make better decisions when choosing your insurance company and coverage.Are all auto & home insurance companies crooked? Are there good companies and bad companies? Certainly, customer satisfaction regarding claims handling varies from company to company, with some companies scoring well year after year for claims service with the majority of their customers, and other companies performing average, or less than average.

I recently reviewed the JD Power 2012 auto & property claims satisfaction studies, and it’s not unusual to see the same companies at the top of the list year after year, as well as the same companies near the bottom of the list.

However, I think it is a mistake to insure with a company with a 4 or 5 power circle rating for claims satisfaction, and think it is the only thing you need to consider, to make sure you are with a “good” company that will pay your claim. My analysis of the JD Power auto & home insurance ratings is a great tool to help you choose the best company for you, but there are other things you need to consider, to make sure you don’t regret your choice of an insurance company after you have a claim.

In order to make sure you are making a smart choice for your auto & home insurance companies, you need to understand the reality of how claims are investigated and paid, and the mistakes most people make when buying insurance.

Mistake #1: All insurance companies are crooked and don’t pay claims, so pay as little as possible for your insurance. Or, I’ve never had a claim, and I never will, so claims service does not matter.

If you ever called an insurance company for a quote, and were told you don’t qualify for their auto insurance because you have an accident, claims, or tickets, or you don’t qualify for their home insurance because your house is too close to a wild fire area, or because your dog bit someone, you might think insurance companies only want to insure people they know won’t have claims.

Some insurance companies decline people with a risk profile showing a greater likelihood of having a claim, but all insurance companies know they will pay claims every year, no matter how selective and “low risk” the customers they choose to insure.

You may have never filed a claim, and be considered a part of a statistical group considered “preferred risk” by insurance companies. But every year, some unlucky people, never having a claim before and considered very low risk, have catastrophic claims.

The odds are in your favor, if you are a part of the preferred risk group, you may never need your insurance. But don’t make the mistake of thinking you can know the future, control the uncontrollable, and not choose your insurance company wisely. There are people every year needing the insurance they thought they would never need, so don’t learn this lesson the hard way, by thinking the choice of your insurance company and coverage do not matter.

If an insurance company does a good job pricing their policies, based on each customers “risk,” the cost of claims for the company is predictable and the company is profitable. Insurance companies do not need to deny claims to make money.

The truth is the majority of claims handled by all auto & home insurance companies are paid and settled properly. Even companies with lousy reputations for handling claims pay most valid claims satisfactorily.

If another car hits and damages your car, and you have Collision auto insurance coverage, your insurance company will pay you the customary cost to repair your vehicle, less your deductible. Or, they will pay you the actual cash value (less your deductible), if the cost to repair exceeds your car’s value.

If your insurance company declines to pay a clearly valid claim as described above, they can be compelled to pay it by your state’s department of insurance. There are penalties for refusing to pay valid claims, or not investigating or settling a claim in good faith. The cost is too high for insurance companies to have a general policy of cheating customers when they file a claim. Insurance companies do their best to keep their claims costs down, but they don’t do it by intentionally ripping off their customers.

The bottom line: You can have a terrible claims experience with any insurance company, but the entire insurance industry is not out to cheat you. Rather than buying solely on price, you want to consider an insurance company’s policy coverage, claims satisfaction ratings, & complaint record to make it less likely you will have a problem with a claim.

Mistake #2: No insurance company pays claims they are not contractually obligated to pay.

An insurance policy is a legal contract between you and the insurance company. The details of the policy are sent to you, and consist of your insurance policy declarations page, insurance contract (usually called the “policy jacket”), and any amendments to your coverage, called “endorsements.”

Your insurance company only pays claims if what happened is covered by the written terms of your coverage, and only up to the extent of their obligation under the contract.

Here’s an example: you have Collision coverage on your car, and it’s damaged in a collision with another car. The insurance company investigates the claim, and determines the collision damage was the result of your intentional act, when you purposefully rear ended another car in an act of road rage. The auto insurance company will deny the claim. This is because, written in your auto insurance policy, collision damage to your car caused by your intentional act is excluded.

Another example of denying an auto insurance claim could be, when the company investigates the claim, it finds out a driver excluded from coverage was driving the car at the time of the collision damage.

One more example is if you were using the car at the time of the accident to make a pizza delivery, your claim will be denied.

When a claim is filed, the company investigates the circumstances to determine if the claim is covered, based on the written terms of your insurance contract and any applicable laws.

Insurance companies always have reasons for denying claims, based on your insurance policy language, but they do not deny claims arbitrarily to avoid paying valid claims. The wording of your insurance policy is used to pay claims the policy was designed to pay. The premium is based on the expected costs associated with claims intended to be covered.

Imagine how expensive auto insurance would be if claims were paid for people intentionally damaging their car. A person could decide, if they no longer liked the car they were driving, to crash it into a tree to make it a total loss, then use the insurance proceeds to buy a car more to their liking.

Similarly, the greater risk of a car being used to make deliveries for a business, are not included when determining personal auto insurance rates. The cost of covering claims for vehicles being used for deliveries would make auto insurance more expensive, if it was not excluded.
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When you agree to exclude a driver living in your household from your auto insurance, the extra premium to cover the driver is not charged. If the company covers a claim when it involves an excluded driver, it is not charging enough premium to cover the claim and the risk associated with this driver. If you are curious to learn more, please see my previous blog post about auto & home insurance exclusions.

However, sometimes an insurance company thinks it’s proper to deny a claim, but the policyholder & their legal counsel disagree. The meaning of the wording of the policy, or the circumstances or cause of the claim, are in dispute. These disputes sometimes end up in court. Occasionally, the denials of certain claims by insurance companies seem to defy reason, at least to people other than the insurance company.

Progressive has lost a lot of customers over their handling of this Progressive auto insurance claim, with people thinking Progressive is going to excessive lengths to fight the claim. But Progressive is not likely acting different than any other company under the same circumstances, by handling the claim based on it’s perceived contractual obligations and the applicable laws involved.

The bottom line: Your insurance agent may be your friend, but your insurance company is not your friend. Insurance companies pay claims based on contractual obligations, not moral obligations. The company you may have been loyal to for many years will not pay any claim it does not legally have to pay.

Mistake #3: There are good and bad insurance companies. Find a good company and you’ll have no problems with auto and home insurance claims. All you need do is avoid the bad insurance companies.

If you like your insurance agent, your insurance company has provided great service, you have been happily insured with them for years, and you have had claims settled to your satisfaction in the past, you may think you are insured with one of the “good’ insurance companies.

Maybe a close friend or relative has told you Company “X” is a great company because of the way they settled a large claim for them five years ago.

These are definitely good signs, but they are not enough to make sure they are a “good” company for you when you have your next claim. I feel confident you can give me the name of any insurance company, and I can find someone complaining they are the worst company in the world. A frequent comment you see with insurance company customer complaints is, “They used to be a great company until…”

Using the JD Power insurance ratings (particularly choosing the companies with the highest point scores, as I discuss in my analysis of these ratings), or finding the auto & home insurance companies with consistently (year after year) lower than the average number of complaints (which I include in my insurance company reviews on my website), may help you select a company where you are less likely to have a bad claims experience. But you can still be sure the company you select has some customers unhappy with how their claims were settled, and there is no guarantee you will not be one of the dissatisfied policyholders in the future.

For example, Auto-Owners Insurance was the third highest scoring company in the 2012 JD Power Property Claims Satisfaction Study, earning a 4 power circle rating (better than most). But you may not feel Auto-Owners is really better than most, if you are this unhappy Auto Owners Insurance customer.

The Bottom line: Realize you can have a great or horrible claims experience with any insurance company. Keep up on your insurance company’s customer service ratings and complaint statistics each year, but use them only as a guide, not as a guarantee, of good or bad service.

Mistake #4: Not knowing your insurance coverage limits and exclusions.

A lot of people buy auto & home insurance and think they are covered if anything happens to their car or home. Then, something happens to their home or car, they find out it is not covered, or coverage is limited by their insurance policy, and they blame the insurance company. This can happen to you, no matter how good you think your insurance company may be, if you don’t know your coverage limitations and exclusions.

There may be a lot of upset customers in NJ & NY after super storm Sandy, having damage to their homes & personal property costing in the tens of thousands of dollars to repair, when they receive small checks, greatly short of the needed repair costs, from their home insurance company. These claims settlements are insufficient to pay the cost to repair because most of the damage to these homes was caused by flood damage or storm surge, which is excluded from coverage under most home insurance policies. Some of these customers may have decided they did not think they needed flood insurance in spite of the exclusion, but some customers may have been unaware of this common exclusion, and did not know they needed to consider buying flood insurance.

If you have a good agent, they may have reviewed your insurance needs, coverage, policy limits, and exclusions when you purchased your insurance policy. But your needs change over time. Did you call your agent when you bought that brand new laptop computer? Did you call your agent when you rented a storage unit for some of your personal property? Did you call your insurance company when you inherited a $10,000 necklace from a deceased family member? A lot of people do not think of the insurance implications as they live their lives. Exclusions and policy limits not a concern for you now, may be important to you in the future. Don’t be one of the many people finding out about them after you have a claim.

Bottom line: Far too many people do not pay attention to their insurance until after they need it, and find out they don’t have the coverage they expected. Have your agent review your coverage limits and exclusions, including optional coverage available, and the need for additional types of insurance every year.

Mistake #5: Thinking auto & home insurance coverage is the same with every insurance company.

You may have your girlfriend or boyfriend drive your car, only to find out the extra liability coverage above the minimum limits you purchased, do not apply if they are involved in an accident. This limitation is not universal among all auto insurance company policies, but it may be a limitation applying to your policy.

The auto insurance policies of different companies usually do not have important differences among them. But auto insurance policies do differ among companies. The limitation I mentioned above may not be common, but it is of utmost importance if it is included in your policy, and you ever have other people drive your car.

So, in addition to considering price, customer satisfaction ratings, and complaint record, the company you select should have the right coverage for you. You can pay low rates with an insurance company providing exceptional customer service, but if the company doesn’t provide the coverage you need, another company offering broader coverage may be the wiser choice for you.

Coverage varies even more among insurance companies when you are buying home insurance.

For example, an exclusion becoming more common is an exclusion for claims caused by more than one cause of loss, if one of the causes is excluded. Once again, let’s look at the damage caused by super storm Sandy. Many homes were damaged by the storm, which is covered, but were also damaged by flood from the storm, which is excluded. Some home insurance policies will exclude coverage for all damage, and some companies will pay for what was damaged only by the storm, not the flood. If your home is at risk of hurricane & flood damage, it would be best to choose a home insurance policy, if it’s available, that will not exclude all damage, if there is also damage from an excluded cause, such as flood.

If your insurance agent represents only one company, they are not likely to mention limitations other insurance companies may not have. In fact, many agents are not aware of what can be very significant — and expensive — differences among the home insurance policies offered by insurance companies.

Bottom line: Be aware coverage can be different among insurance companies. Read your insurance policies, and compare coverage among companies. Use the expertise of competing agents to find out if your insurance policy has a limitation you need to avoid, or is missing a coverage option you need.

Do you think your auto & home insurance companies are good or bad? How can you be sure? Tell me about it. Comment on my facebook page. Or, you can e-mail me at help@smartshopyourcarinsurance.com if you have questions and would like my help. Follow me on Twitter for important insurance consumer news and new blog entries at CarInsWatch.