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Redlining: A Thin Line between Profits and Discrimination

Written by Todd Clay. Posted in Definitions Last Updated: 08/31/2011

Profitability not discrimination is the driving force behind increased premium rates in certain geographical areas.

Hand Drawing A Red Insurance Line

Drawing red lines on maps around minority neighborhoods that they would not insure is a dark part of insurance history.

Insurance redlining is the act of increasing insurance premiums based on the information that the client lives in a particular neighborhood. Insurance companies contend that they have to charge higher premiums for certain areas because the chance of a claim being filed for theft or other damage while a vehicle is in that area is higher.

Because most of these neighborhoods with the higher rates are home to a higher percentage of minorities, the insurance companies have to walk that thin line between making money and practicing discrimination.

Illegal form of discrimination

Redlining is a form of illegal discrimination that was used in the past by insurance companies and is still alleged to go on today. The word “redlining” came from red lines that were drawn on a map around neighborhoods (predominately minority populated) that were not eligible for home loans.

This “redlining” practice carried into the field of insurance on the back of the home loan decisions. Insurance companies would also outline neighborhoods on their maps that they refused to insure. These refusals were based primarily on the fact that that the neighborhoods were populated by minorities.

Insurance companies would even ask a person’s race on an application and would deny the application solely on the answer that was given.

Accusation of Redlining Today

Even though the government has passed laws that prohibit redlining, people charge that insurance companies are still participating in the act. While the insurance companies are no longer denying insurance solely based on race or location in a minority neighborhood, the accusations are targeted at the premiums being charged.

Insurance companies charge more for certain neighborhoods that statistically have a higher chance of an incident happening that would result in a reportable claim. Because these neighborhoods that are charged higher premiums are predominately minority neighborhoods, people claim the act of redlining is at work.

The Insurance Company’s Side

Insurance companies are not purposely trying to engage in illegal discrimination. However, insurance companies are in the business to make a profit and not to be a charity.

This means that their business focus has to be on bringing in more insurance premium than they pay out in claims each year. To do this they charge people more who have a higher risk of having a claim to offset the amount of the claim they are most likely going to see filed.

Unfortunately, just like drivers there are certain neighborhoods that have a higher risk of having a car stolen or being hit. If you live in one of these neighborhoods your insurance premium will be higher because of the higher chance of filing a claim.

If an insurance company does not charge enough premium according to the risk they are taking on when they insure someone, they will go out of business. Leaving everyone that has paid them premium without an insurance company to pay any claims that they may have in the future.

Doing the Right Thing – Liberty Mutual

Written by Michele Wilmonen. Posted in Advertising, Research Last Updated: 08/24/2011

Liberty Mutual opts to make themselves look responsible rather than following everyone else into the cut-rate insurance premium advertising war.

Summary

Commercial opens at what looks like a train station with guitar music playing in the back ground. At the train station we see a gentleman remove an object out of the way of a blind woman. He does this silently and without being asked.

This one act of kindness is viewed by another person who in turn acts kindly to an opponent during a soccer game. As the commercial progresses, each act of kindness is view by another person who in turn acts kindly to someone else; creating a chain of events.

Narrator (at end of commercial): Everyday millions of people choose to do the right thing. There’s an insurance company that does that too. Liberty Mutual Insurance. Responsibility: What’s Your Policy?

Point of the Commercial

The whole base of this commercial is to “do the right thing”. In the field of insurance, this means to pay claims when they are legitimate and to not price gouge. But, they never tell you what they mean when they say this so you are left to assume their meaning.

The ending also puts an exclamation point on what they are trying to say when they add the tagline “Responsibility: What’s your policy?” Again, they are telling you that they are going to be a responsible insurance company for you, but they don’t tell you in what way.

Liberty Mutual is very much playing up on the current distrust that people have for big businesses right now with the current recession. They are making the point that they will be there for you to “do the right thing” and to act “responsibly” for you.

What the Insurance Company Wants You to Do

Naturally they want you to contact them for an insurance policy; but they don’t come out to encourage you to do so. This is a psychological move on their part to put the ball in your court and make you not feel like you are being pressured into contacting them for a quote.

They are telling you straight out that they will accept the responsibility of doing what is right by you if you had a policy with them. Then they let you think about what they just told you.

Right now this is a little bit of a gamble for them. With so many people looking for ways to cut corners and save money, they are instead trying to gain your trust in them as a corporation.

My Opinion

I am riding the fence with this one. I do like it, it is different and the company plays up on something other than how much money they can save you.  The commercial is also a nice reminder to those of us that live in this “me, me, me” world that one act of kindness can set off a whole chain of kindness.

But, I am still not liking that they are not specific in their claims of what they are going to be doing the right thing with.

I give it a thumbs up and a thumbs down.

Risk Management in Commercial Auto Insurance

Written by W. Lane Startin. Posted in Definitions Last Updated: 08/22/2011

What risk management in auto insurance is, how it works pertaining to auto insurance, and basics of commercial auto insurance every risk manager should know.

The risk manager acts like an agent for the company rather than the insurance carrier.

Not all insurance jobs involve working as an agent or in a company home office. Larger companies may need insurance experts to help them navigate the ins and outs of insurance they face every day. Auto insurance being no exception.

These professionals are known as risk managers. One of their duties is to make sure the company is getting the most of its insurance premium as well as minimizing its exposure to adverse claim conditions.

Risk Management Defined

Risk management is a career path that can involve pretty much everything the financial sector has to offer; insurance is just a small part of it, and auto insurance just a small part of that.

Risk mangers can be generalists, working in a full range of financial fields such as financial law, accounting, compliance, contracts and other areas, or as specialists dealing strictly in areas such as insurance. It depends on the company and its needs.

Of course, risk management as it applies to auto insurance necessarily deals with commercial and fleet auto insurance. A risk manager dealing in auto insurance needs to be familiar with commercial auto insurance and how to best utilize it not only to prevent adverse insurance conditions such as claim denial, but also how to get the most out of the company’s insurance expenditures.

Knowing the Basics of Risk Management

A risk manager in essence can act as an insurance agent of sorts for his or her company rather than for an insurance carrier. Because of this, it is important for him or her to know the basics of commercial auto insurance and apply it to everyday company policy, even if the company’s “fleet” consists of only one vehicle.

Because commercial insurance requires a company to keep a current list of both vehicles and drivers on file with the insurance carrier at all times, it is of paramount importance for the risk manager to keep on top of both changing inventory and personnel and report it to the insurance company in a timely manner. This is inclusive of trailers and any equipment covered on inland marine policies. The risk manager should keep a file of VINs, serial numbers and drivers licenses as well.

The risk manager should know the insurance company rules regarding drivers, especially age restrictions. Most commercial policies require drivers to be between the ages of 25 and 74 with no exceptions. Drivers should also be properly licensed for the vehicles they drive.

Truck Insurance Considerations

If the company employs large trucks over 26,000 GVW, a different set of rules come into play, especially if their trucks travel out of state. The risk manager will want to ensure that all vehicles have valid and proper interstate trip permits and that all drivers have appropriate CDL licenses.

He or she will also want to make sure that these vehicles are covered appropriately with coverages such as bobtail coverage, or coverage for big rigs which are not pulling trailers, which is often excluded in standard truck policies.

Prized Possessions- Travelers Insurance

Written by Michele Wilmonen. Posted in Advertising, Research Last Updated: 08/24/2011

Travelers Insurance is bringing us back to what insurance is really about.

Summary

We follow the adventure of a very worried dog as he tries to find a secure place to hide his bone. At first he tries to hide his bone around the house. No matter where he hides it, the bone is either obvious or he doesn’t feel secure about the hiding place.

He tries to bury the bone outside and a cat goes running by. Now that the cat has seen the hole, the dog keeps watch overnight thinking that the cat is going to come back for the bone.

Taking a bus into town, another dog that is on a walk spies the bone in the dog’s mouth. The dog on the bus quickly ducks down below the window level to hide the bone.

The bus takes the dog to a bank where he deposits the bone in a security box that goes into a locked bank vault. During a following nap the dog dreams that the dog he saw on the walk and the cat both have gotten into the security box and took his bone.

Running back to the bank he gets his bone back and takes it home. We find that the dog is no longer worried about his bone as it is safely out in the open in his dish with a Traveler’s Umbrella protecting it.

Narrator: When it comes to things you care about leave nothing to chance. Travelers: insurance for auto, home and business.

Point of the Commercial

Travelers Insurance is presenting to the consumer the original concept of insurance; protection of your assets. They use the dog to portray us and how protective some of us are with our “stuff” and also how paranoid we can get over making sure it is okay.

If you watch the commercial closely, you will notice that they throw in the line “leave nothing to chance”.  This is a nice point being made by Travelers, especially if you are already distrusting of your current insurance company or if you have any items that are uninsured.

What They want you to Do

Travelers Insurance wants you to trust them with your stuff. This means placing your insurance coverage with them so it is all protected. As the end of the commercial points out also, they aren’t just after your car insurance. They are letting you know that they can protect it all for you.

My Opinion

A fun commercial to watch, but once you see it a handful of times the novelty definitely wears off and it just feels long. The point that the insurance company is making though is put to the consumer in a very entertaining way. It is also not a commercial that will be forgotten quickly.

Overall, I feel that it deserves a thumbs up.

Which Insurance Company is the Cheapest?

Written by Michele Wilmonen. Posted in Ask An Insurance Question Last Updated: 09/01/2011

Getting insurance quotes would be much easier if we already knew which insurance company was the cheapest.

As much as I would love to tell you exactly who you can get the cheapest insurance from, I can’t. There are too many factors involved in putting an insurance package and rates together that the cheapest insurance company will vary from person to person.

First, your rate depends on the location in where you live so the cheapest company for your neighborhood may be different in someone else’s neighborhood. Second, what you drive and how you drive will also determine who your cheapest insurance company is.

Insurance companies even sometime specialize in certain markets also. They may offer better rates to bad drivers or even drivers of high performance vehicles than other companies do.

So as you can see there is no one cheapest insurance company because insurance is not a one-size-fits-all product.

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Car Insurance Guidebook Unravels the Car Insurance Mystery

Unless you work in the car insurance industry, the topic is probably a mystery to you. The words deductible, comprehensive, collision, liability, premium, loss of use and bodily injury are all gibberish when they reach your ears.

Unfortunately, insurance is something that you are required to have by law if you want to drive. Because of how confusing it is many people go around in almost an insurance daze while they get car insurance quotes from the auto insurance companies that they have heard of. In reality, they are completely lost as to what they are actually buying.

Instead of looking at what each insurance company offers in the terms of protection for both themselves and their car, they are instead looking for cheap car insurance. Finding the cheapest car insurance coverage makes having to buy the required product all that much less painful, but misses the whole point of having insurance.

Learning about insurance through your insurance agent or websites like Car Insurance Guidebook will give you the upper hand when you looking for car insurance. You can take your knowledge and not only find the best price for insurance, you can use it to find really great insurance to protect you and your assets. Then you aren’t stuck settling for just average car insurance that can hurt you financially if you ever need it because there isn’t enough protection.

For example, when looking for insurance the car insurance rates are just the first of many factors that need to be taken into account when you are shopping around for car insurance. You also need to take into account the type of vehicle that you are driving. Many people don’t know this.

Are you driving around a vehicle that is a new sedan and can be protected under any blanket insurance policy? Or do you have an old car that you fixed up that needs special protection and could be better covered under classic car insurance?

Don’t just assume that when you compare car insurance that it will be a one-size-fits-all policy. This is where the insurance knowledge will come in handy; you will know what you need to protect yourself and your vehicle.

You will understand what your insurance agent is talking about when they use insurance terms and you will actually be able to make an informed decision. This is much better for you instead of the “nod and smile” approach people take in their insurance agent’s office.

Also just like your life changes your insurance needs will change. This year you may just need to learn about the best deductible to have. Next year you may need to educate yourself on car insurance for young drivers. As the years pass, motorcycle insurance may be something you will need to know.

Many wise people say that you never stop learning, so take their advice and educate yourself on the insurance that you spend a lot of money on and can’t get away with not having.