Category: Auto Insurance

Credit History and Auto Insurance Premiums: What’s the Connection?

Increasingly, consumers are asking why their credit rating affects the rates they pay for automobile insurance. Yet using an individual’s credit rating as a criterion for determining an auto insurance premium is a fairly common practice in the insurance industry. Why? Statistics compiled by the Insurance Information Institute indicate that drivers with low credit scores are more likely to file insurance claims. As a result, the lower a person’s credit score, the more likely it is that the individual will pay higher auto insurance premiums; conversely, the higher the credit score, the lower the insurance rates.

When using credit scores to set automobile insurance premiums, insurance companies consider a number of elements in an individual’s credit history. The two most important factors are an individual’s payment history and the amount of debt the individual owes. Insurers want to know whether an individual has made late payments or has missed payments, as well as whether he or she is paying down or accumulating debt. Other criteria are the length of an individual’s credit history, the number of accounts in an individual’s credit report, and the amount of new account activity in the report.

Many consumers feel that the practice of using credit history and not solely an individual’s driving record in determining auto insurance premiums is unfair. They argue that it’s wrong to charge higher rates to individuals who have not had any tickets or accidents for many years but who have lower credit scores. Yet drivers with multiple tickets or at-fault claims pay lower auto insurance premiums merely because they have excellent credit ratings. Insurance companies claim that using credit history is a proven tool that helps them measure their risk of loss and set their rates accordingly.

Given the current economic climate, with high unemployment and a record number of mortgage foreclosures, even individuals who once had good credit history may find themselves facing double trouble: mounting debt and higher auto insurance premiums. That’s why now more than ever, consumers need to work with insurance professionals committed to getting them the best automobile coverage at the best price.

For more information, contact us.

Preventing “Unavoidable” Accidents: More Help for Organizations Seeking to Minimize Losses and Keep Auto Insurance Rates Down

Let’s start by recalling what we mean by “preventable” accidents – those accidents that can be avoided in spite of any adverse driving conditions and in spite of any unsafe practices on the part of the driver who caused the accident. The key to preventing such accidents is a driver’s consistent adherence to the National Safety Council’s techniques for driving defensively, skills that should serve as the foundation for all employers’ driver training programs.

Previously, we explained how accidents can be prevented by crossing intersections correctly, passing vehicles safely, and maintaining a proper driving distance from other vehicles. Now we’ll look at similarly challenging situations and explain how drivers can keep themselves and their vehicles safe.

“The Vehicle Came at Me from Nowhere!”

Typically, an accident in which a driver is struck head-on by an oncoming vehicle that seems to “come from nowhere” is thought of as unavoidable. But accident investigators, after determining the exact locations of the vehicles before and at impact, can usually tell if it was possible for the vehicle that was struck to have avoided the collision.

Say, for example, a vehicle strikes another, head-on, as a result of a foolhardy passing attempt on a two-lane road. Investigators will try to determine if the driver who was struck could have prevented the accident by:

  • Moving to the right;
  • Slowing down or stopping;
  • Flashing headlights; or
  • Sounding the horn.

While fault may be readily assigned to the vehicle attempting the reckless pass, such a determination does not mean the other driver could not have taken action to prevent the accident.

Pedestrians: Do They Always Have Right of Way?

Accident review findings generally uphold the assessment of fault to a driver who strikes a pedestrian. But what about when the pedestrian “jaywalks” by dashing out from between parked cars? Or recklessly crosses a busy street? Are accidents caused by heedless pedestrians preventable?

Yes. School zones, residential streets, and other areas with regular pedestrian traffic must be traveled at speeds appropriate to the situation, and that usually means below the posted limits. Similar logic applies with regard to bicycles, scooters, and other slower-moving modes of transportation; since these vehicles are often driven by young, less experienced drivers, operators of cars and trucks must reduce their speed when such vehicles are within sight distance.

Ultimately, the failure to take necessary driving precautions when the presence of pedestrians calls for reduced driving speeds may result in preventable accidents.

Turn, Turn, Turn

It’s no surprise that, along with passing maneuvers, executing turns generally requires the most care on the part of drivers. Since the driver making the turn is in control of both the vehicle and the situation, the turning driver is also expected to prevent accidents by:

  • Never squeezing out other vehicles, scooters, bicycles, or pedestrians;
  • Signaling all turns;
  • Positioning the vehicle properly when turning;
  • Never making illegal or unsafe U-turns;
  • Checking pedestrian and bike lanes before turning; and
  • Taking any defensive actions required by the situation.

Other Preventable Accidents

Beyond the obvious challenges inherent in crossing intersections, passing, and turning, there are other driving situations in which accidents are also likely to be judged preventable, such as when drivers fail to:

  • Adjust to adverse weather conditions, including rain, snow, fog, ice, etc., or avoid such conditions entirely;
  • Issue or heed warning signals when encountering traffic near alleys, driveways, and other specialized intersections;
  • Properly judge clearances of fixed objects (unfamiliarity with the area or the driving conditions is not, by itself, a valid excuse);
  • Safely park a vehicle by leaving it in the wrong gear (possibly resulting in a roll-away), double-parking the vehicle, leaving the wheels turned in the wrong direction, leaving it unlocked and accessible, etc.; and
  • Obtain needed repairs to a vehicle with detectable problems, resulting in mechanical failures, breakdowns, and unsafe operation.

Accident ‘Unpreventability’

After educating your organization’s drivers on standards of accident preventability, you might be asked the question:

“So is an accident ever not preventable?”

The best, and perhaps the only, answer to this question is to remind drivers that while it is impossible to list every way that accidents can be avoided, the following standards will always be applied when their driving is evaluated:

Defensive drivers:

  • Make allowances for other drivers’ lack of skill and improper driving habits;
  • Adjust their driving to the current weather, road, and traffic conditions;
  • Compensate for the unsafe actions of pedestrians;
  • Remain alert to accident-producing situations and take every precaution to avoid accidents; and
  • Know when they must yield right of way, slow down, or stop to avoid being involved in accidents.

Only by maintaining and enforcing high standards for your drivers will you be able to maintain low commercial auto insurance rates.

When Are Accidents Preventable? A Guide for Organizations Seeking to Minimize Losses and Keep Auto Insurance Rates Reasonable

Every organization’s risk manager dreads a phone call like this from one of the company’s drivers:

“I’ve been in an accident. I’m okay, and so is the other driver, but my vehicle is totaled. It wasn’t my fault, though – the other car just came from nowhere!”

Of course, you’re relieved no one was hurt, but you can’t help thinking with chagrin, “This could cost us a lot of money.”

And you have good reason to be concerned. Aside from the cost of replacing the vehicle and the likely disruption in business operations, you’re worried that another claim against your commercial auto policy could result in a substantial increase in your premium.

That’s why the time to act is before you send your drivers out on the road, and that means having in place a robust loss control and safety program that includes training drivers in accident avoidance. And since the objective of all safe driving courses is to teach drivers to prevent accidents from happening in the first place, drivers must be taught the concept of preventability.

Preventability is the basis for determining whether an accident could have been avoided in spite of any adverse driving conditions and in spite of any unsafe practices on the part of the driver who caused the accident. In other words, even if a driver is not ticketed for or charged with causing an accident, that doesn’t necessarily mean that the accident was not, from the driver’s perspective, preventable.

It should be made clear that preventability is not, in this context, a legal concept used to determine fault or establish negligence. Instead, preventability is a determination based on the belief that driving safely and minimizing the risk of accidents requires consistent adherence to defensive driving principles and techniques endorsed by the National Safety Council.

Of course, given the many factors involved in auto accidents, establishing specific criteria for determining when an accident should be deemed preventable is difficult. Nonetheless, managers must have in place standards for preventability that they explain clearly to drivers and that they apply consistently and impartially when assessing drivers’ performance.

Negotiating Intersections

It’s well known that many accidents occur at intersections, and while you might assume that even safe drivers are powerless against drivers who run red lights or stop signs, that’s not the case. A basic principle of defensive driving is that drivers should approach, enter, and cross intersections in a manner that compensates for other drivers’ failure to obey traffic signs or conform to traffic laws.

Here’s a perfect example: After the light at an intersection turns green, a driver immediately accelerates and is then struck by another vehicle, coming from the opposite direction, that has run a red light.

The driver whose vehicle was struck will not be charged with the accident, as it is clear that it was the other driver who broke the law. But the accident might still have been prevented if the driver not at fault had paused, looked to the left, to the right, and then to the left again before proceeding. In other words, that driver could have prevented the accident by allowing for the other’s recklessness.

That’s why defensive drivers, when they encounter the complex traffic flow, blind spots, and illegal maneuvers of other drivers that are all too common at busy intersections, can prevent accidents by proceeding with caution.

When Cars Collide

The key to preventing front-end collisions rests largely on whether drivers observe the proper following distance at all times. In ideal road conditions, a driver should maintain a two- to three-second following distance between his or her vehicle and the one immediately ahead; in bad conditions, an even greater following distance is recommended.

Nighttime front-end collisions often occur when drivers “overdrive their headlights,” that is, they travel at a speed at which they cannot come to a complete stop within the distance illuminated by their vehicle’s headlights. Instructing drivers to stay within “the headlight zone” is key to preventing nighttime collisions.

When their vehicle is struck from behind in a classic “rear-ender,” drivers may automatically assume that the accident could not have been prevented, but experience suggests otherwise. The risk of rear-end collisions increases if the lead driver has not maintained a proper following distance with the car in front. So when a driver must stop suddenly to avoid hitting the car ahead of his or her own, and then gets rear-ended by another tailgating driver, that accident may legitimately be deemed “preventable.”

Similarly, other rear-end collisions that can be prevented include those that occur when the driver in front:

  • Allows the vehicle to roll backwards;
  • Stops too abruptly when a traffic signal changes (usually because the driver was speeding); and
  • Fails to use turn signals.

Backing accidents are almost always preventable, even when the driver reversing the vehicle is getting “help” with the maneuver. Simply put, the driver is the only person who can control the vehicle and therefore is entirely responsible for checking the vehicle’s clearance by using rear- and side-view mirrors properly and looking backward when necessary.

So what should defensive drivers do to prevent both front- and rear-end collisions? Slow down, pay attention, maintain a safe distance from other cars, and be sure to signal their intentions to other drivers.

Passing Fancies

Accidents that occur during passing maneuvers are preventable for the simple reason that the act of passing another vehicle is almost always voluntary; therefore, the passing driver is responsible for and capable of preventing accidents that could result from his or her driving decisions.

Let’s say that a driver is struck by the vehicle he or she is attempting to pass because that vehicle unexpectedly and improperly speeds up to avoid being overtaken. While the other driver has technically “caused” the accident by striking the passing vehicle, it is possible that the passing driver’s judgment will be deemed poor and the maneuver ill-considered. Such an accident is certainly preventable.

And what about when a vehicle is sideswept or cut off by another vehicle attempting to pass it? If the driver being passed has failed to yield to the other vehicle by slowing down or by safely moving to the right, then the resulting accident, though not the fault of the driver being passed, could have been prevented by defensive driving.

Safe Driving is No Accident

Of course, there are other situations in which driving defensively can prevent accidents often thought of as unavoidable, and we’ll discuss some of these in next month’s newsletter.

But it’s always a good idea to review the standards of defensive driving with those employees who operate a vehicle as part of their job.

Defensive drivers:

  • Make allowances for other drivers’ lack of skill and improper driving habits;
  • Adjust their driving to the current weather, road, and traffic conditions;
  • Compensate for the unsafe actions of pedestrians;
  • Remain alert to accident-producing situations and take every precaution to avoid accidents; and
  • Know when they must yield right of way, slow down, or stop to avoid being involved in accidents.

Adherence to these standards is in both your employees’ and your organization’s best interest.

GAP Coverage

There’s nothing more exciting or memorable for a vehicle owner than the day he or she acquires a brand new vehicle. Unfortunately, if the vehicle is in an accident and a total loss occurs, this great day can come to a screeching halt. Unexpected problems arise and there is often a lack of funds to cover this unforeseen loss. In addition, when the insurance claim is settled, vehicle owners are faced with the reality that they owe more on their auto loans than they were compensated by their insurance companies.

This article will shed some light on the importance of GAP Coverage and the exposures that vehicle owners and leasers can be left with if not protected properly.

An article published by the Wall Street Journal (October, 2002) pointed out that an automobile valued at approximately $19,440 (sticker price) and traded within two years will only retain a trade-in value of $8,302, which indicates a 57% depreciation. Statistics have shown that 40% of the time a consumer trades in a car they owe more than the car is worth. This results from the fact that the loan amount on most cars decreases only slightly in the first two years and is known as being “upside down”.

The solution to this problem is that coverage can be purchased under the Personal Auto Policy (PAP) or the Business Auto Policy (BAP). This coverage is called Guaranteed Auto Protection (GAP) and can be added to either the PAP or BAP for a reasonable amount. This coverage fills the gap between the amount owed on a loan and the actual cash value (ACV) settlement paid by the insurance company for a total loss situation. GAP is available for either financed or leased vehicles. Auto dealers often offer this coverage at the time of the lease or purchase, however comparing their price to the cost under the PAP, the dealer’s is usually significantly higher.

In the event that you had a total loss to “your covered auto” and you carried GAP coverage, this coverage would help to pay for:

  • Any overdue lease or loan payment(s) at the time of loss;
  • Financial penalties imposed under a lease for excessive use;
  • Abnormal wear and tear or high mileage;
  • Security deposits not refunded by a leaser;
  • Costs for extended warranties;
  • Credit life insurance;
  • Health, accident or disability insurance purchased with the loan or lease; and
  • Carry-over balances from previous loans or leases.

This will help eliminate the potential for significant out of pocket expenses especially for someone who has entered into a long-term auto lease situation.