Auto Insurance Still a Mystery to Many

One thing that seems clear about auto insurance: drivers know they have to get it, but, despite that, they just don't "get it."  When it comes to understanding auto insurance, a high percentage of the population has difficulty grasping the subject matter.  And while you might think older drivers have a better handle on the nuances of car insurance than younger, less experienced drivers, the statistics say that's fallacious (though not salacious, unfortunately).

In an online survey of 1,000 teens and 1,000 adults, the Progressive group of companies found that adults were no more knowledgeable about how auto insurance works than were teens.  While the adults scored better in some categories, they scored worse than the teens in others.

Here are some auto insurances facts that might be worthwhile knowing:

The majority of drivers (teens and adults) don't believe information about their credit history affects their insurance rates.  Some 71 percent of teens and 63 percent of adults think that credit problems won't drive up the cost of their insurance coverage.  But what they're not reckoning on is that those with messy credit also are messy drivers. Because there is a direct, proven correlation between a driver's credit history and the likelihood he or she will be involved in a future crash, most auto insurance companies consider information about credit histories when calculating individual's rates.

Oddly, nearly a third of adults and a quarter of teens think the color of their car affects their insurance rates (30 and 22 percent, respectively).  But while insurance companies have noted a correlation between credit rating and crashes, no correlation has ever been found between the color of a car and the likelihood of the driver being involved in a future crash.  Because of that, color has no bearing on rates at all.

There also seems to be a great deal of confusion in both teens and adults on a key factor that does help determine their insurance rates -- place of residence.  Only 57 percent of teens and 71 percent of adults know that where they live affects rates.  But research has shown insurers that if you live in a more congested neighborhood (e.g. the city), chances are you are more likely to be involved in a crash and/or have your car stolen, so data about where you live is generally taken into account by auto insurers.

The final disconnect between reality and belief involves simple cost. Nearly a quarter of teens (23 percent) and 18 percent of adults think auto insurance rates are pretty much the same from company to company. But the reality is rates vary widely from company to company because each company has different costs of doing business and different experiences paying claims.  In fact, a recent study by Progressive showed rates for different companies vary an average of $586 for every six months of coverage.  What does that tell you?  To get the best rates, shop around.

Driving Today Managing Editor Jack R. Nerad writes frequently about the expenses involved in owning a car.

Could Cash-Back Incentives Hurt Consumers?

The same hot-and-heavy competition that gives American consumers significant value for their automotive dollar may actually be destructive to the consumer in the long run.  That was a surprising message delivered by Jed Connelly, senior vice president of sales and marketing for Nissan North America Inc., to a large contingent of local and national auto journalists at the recent California International Auto Show in Anaheim.

"I want to touch on the dangers -- hidden and obvious -- of the current dependence on incentive marketing, if you can call that marketing," he told the group.

In a speech that drew national attention, Connelly said he feared the high-tech solutions that the auto industry continues to introduce -- things like hybrid vehicles, fuel cells, rear vision cameras and lane departure warning systems -- will not get the public recognition they deserve under the intense pressure to advertise incentives.

"The industry pioneers set up the duck for us and laid out a blueprint for how great and powerful this industry can be," he said.  "Yet, if we are not careful, all we will be known for is how we went to market -- not the new technologies we bring and can continue to bring."

Connelly warned that the reliance on incentives might eventually prove injurious to the industry as a whole...and to the automotive consumer.

"I believe that right now, right here, we stand at a critical departure point," he said. "We can continue to follow the path of escalating incentives that kicked into high gear in late September, or we can start to dial it back and compete on the strength of our products, rather than the size of the discount."
 
The Nissan executive warned that by relying on incentive marketing could drain cash that might otherwise be spent on critical research and development.  Connelly said that in a 17-million vehicle U.S. car market, for every extra $1,000 the industry spends on incentives, $17 billion in profits are given up by the manufacturers.  Since today's incentives often average $3,000-plus, that means that an estimated $51 billion is being spent on incentives that could, in theory, be spent on developing new safety and convenience features and systems.

The solution, he said, is to hold the line against incentives and "bring buyers -- Millennials, Gen Xers and Baby Boomers -- into our showrooms with exciting products, instead of enticing financing."

The unanswered question is whether demand for cars, trucks and sport utility vehicles will continue if manufacturers begin to withdraw incentives.  General Motors and Ford started the 2005 model year in October with lower incentives than in previous months, believing that fresh vehicles would help carry sales forward.  But instead October was a disastrous month for the domestic auto makers, who quickly dialed up cash-back and special financing offers.

In today's crowded automotive marketplace it seems only new models that strike a particular chord with buyers can succeed without incentives.  And even those prove to be short-lived.  Witness the current glut of Volkswagen New Beetles and Chrysler PT Cruisers, two vehicles that once commanded retail prices over the manufacturer's suggested list.  So the manufacturer that takes a solitary stand against incentives, even for the best reasons, could be very lonely indeed.

Cleveland-based auto writer Luigi Fraschini is a student of the new- and used-car market.

A Picture is Worth 10 Years

A week ago we told you humans are strange animals.  And that hasn't changed in seven days.  In fact the really stupid things they do in failed attempts to cheat insurance companies out of money seem to go from dumb to even dumber.  In viewing the files of Progressive Insurance fraud investigator Ray Albertini you'd almost think that these inept criminals were trying to get caught. 

Of course, insurance fraud is a serious crime that costs all of us cash, because insurance companies have to cover their fraudulent losses somehow, and the money is not going to come from the criminals who seek to rip them off.  Instead, we bear the brunt for what the National Insurance Crime Bureau estimates is more than $30 billion a year in bogus claims.

Of course, if you want to talk about bogus, you should hear about the schemes some people come up with. Like these, for instance:

What's Wrong with this Picture?

A customer said some parts were stolen from his car, and to support his claim, he submitted some invoices along with Polaroid photos. While the invoices looked trumped up, at first blush the photos looked pretty good, but on closer inspection something seemed a little odd about them. After more study, investigators realized the guy had taken extreme closeups of a toy car that was the same color and make of his actual car. The customer eventually admitted he took photos of the toy car and tried to pass them off as photos of his actual vehicle.  The lesson: don't do that.
 
Miracle Cure

A passenger riding in the car of an insured driver was injured in a crash and needed chiropractic treatment. The insurance company had no problem with that and covered the cost of the treatments. However, sometime before completing the prescribed series of doctor visits, the injured passenger died of unrelated, natural causes. Now, you'd think that a person who is deceased would no longer benefit from a doctor's care, but evidently, the chiropractor thought otherwise. He continued to bill for treatment for a full month after his patient's death.
 
Going the Extra Mile

A woman decided to take her boyfriend's motorcycle for a ride, but, unfortunately, she didn't know how to drive a motorcycle and crashed it. Luckily, she wasn't injured. But her boyfriend, afraid his insurance wouldn't cover the damage to his motorcycle because his girlfriend wasn't listed as a driver on his policy, decided to pretend that he had crashed the motorcycle. His thoughts weren't unique, but this particular perpetrator took the whole thing to a new level. He figured he needed some injuries to make his story of crashing the bike credible, so he tied himself to the back of a truck and asked a friend to drag him around a little bit to produce the "road rash" he would have gotten from the purported motorcycle wreck. That part of the plan worked, because he received some authentic-looking injuries.  But he didn't count on his girlfriend's big mouth.  She told investigators that she crashed the motorcycle, so his physical pain became financial and psychic as well.

"People may laugh at some of these incidents, but what they need to realize is that people who commit fraud are taking money out of everyone else's pockets," said Progressive's Albertini.

What can you do about it?  Well, if you become aware of or suspect fraudulent activity you can report it anonymously to the National Insurance Crime Bureau at 800-TEL-NICB (800-835-6422).  That simple phone call can help us all.

Driving Today Managing Editor Jack R. Nerad has written a book called Fatal Photographs, detailing an automotive-related murder case.

Why Not Set Yourself on Fire?

Humans are strange animals.  And they do really stupid things in failed attempts to cheat insurance companies out of money.  That's the conclusion you have to draw after viewing the files of Progressive Insurance fraud investigator Ray Albertini.  Of course, insurance fraud is no laughing matter.  It's a serious crime that costs consumers a lot of money. The National Insurance Crime Bureau estimates that property and casualty insurers pay more than $30 billion a year in bogus claims, and those additional costs are generally passed on to consumers in the form of higher premiums.

"People think of insurance fraud as a victimless crime when, in fact, honest policyholders end up being victimized," said Albertini, Progressive's national director of special investigations. "Most insurance companies base their rates on the cost of doing business. When costs go up because of fraudulent claims, other customers end up paying the price. People need to be aware of fraud and be willing to report it when they suspect it."

Some criminals might think they're being clever when they try to cheat insurance companies, but often they end up making mistakes that get them caught, injured and sometimes even killed.  While some offenders who commit fraud are never brought to justice, others, as Albertini's files suggest, seem to be begging to be apprehended.  Consider if you will:

The Ex Post Facto Purchase

One fairly common type of insurance fraud people commit is buying coverage after their car has been damaged. This after-the-fact purchase of insurance can be difficult to prove, but some perpetrators have had the audacity to buy coverage literally from the scene of the accident itself. Take the case of the motorcyclist who wiped out and, while lying on the side of the road with a ruptured spleen, had the presence of mind to call 1-800-PROGRESSIVE to buy coverage. What he didn't know was that a witness who saw the accident also heard him make the call.

In another case, a couple's car caught on fire. With the car in flames, the husband got on the phone with the insurance company to buy a policy, but the fraud was uncovered when his wife was overheard yelling in the background that the car was about to explode.

Playing With Fire
 
Remember the old saying about playing with fire?  Well, we doubt that the brilliant criminals who hatched the following fraud scheme expected to get burned, but they did.  Figuring the easiest and quickest way to collect insurance money was to destroy his car by setting it on fire, the car's owner hired two brothers to torch his ride.  But he apparently hired the mentally handicapped.  The two brothers doused the vehicle with gasoline, and to make sure the vehicle would be completely destroyed, they decided to throw in a pipe bomb. The plan immediately went awry because when the bomb exploded, it set one of the men on fire. He was likely killed instantly from the explosion, but his brother, not realizing that his brother had passed, rushed to extinguish the flames and ended up catching fire himself. He ran toward a nearby highway for help and flagged down a state trooper who had come to investigate the black cloud of smoke. The man told the trooper what he and his brother had done and then, like his brother, expired from his injuries.

We'll have more "Insurance Fraud Files" next week in this space, as we continue to document the simple fact that crime doesn't pay.

Driving Today Managing Editor Jack R. Nerad also writes frequently on true crime.

Silver Reigns as Top Car Color

In Asia, Europe and North America, silver is top dog among automotive colors.  Designers and consumers alike have gravitated to the metallic color, which only makes sense since cars are composed primarily of steel.  But in North America, the continent that is starting to lead rather than follow color trends, rich shades of medium-dark metallic gray increased significantly in popularity while red and other high-chroma colors hint at major changes to come in the automotive color palette.

How do we know this?  We asked a top auto paint manufacturer.  Each year DuPont publishes its Automotive Color Popularity Report, which many feel is the industry's authoritative baseline for analyzing and predicting vehicle color trends.

Among the key findings: in the North American luxury segment, which is often indicative of future trends across all vehicle segments, medium-dark gray jumped from sixth place to the lead color choice, and red surpassed blue in the popularity standings. Gray jumped from sixth to third place in the sport/compact segment and has climbed four places to also become the third most popular color in the full-size/intermediate segment.  So is consumers' desire for cars with metallic hues going away?  Not necessarily.

"Medium-dark grays, enhanced with coarser metallic effects, retain the technical sophistication of silver while providing a sense of richness and value to differentiate new vehicle models from the mainstream," said Robert Daily, DuPont Automotive color marketing manager.

Overall, medium-dark gray spread across North America in the past year, increasing nearly 4.5 percentage points. Although silver remains the top vehicle color of choice at 20.2 percent, it slipped slightly in North America overall standings. Silver is trailed by white at 18.4 percent, which is up from 15.2 percent in 2002. Black, at nearly 12 percent remained the third most popular choice among vehicle consumers. Light brown, revitalized with soft metallic effects, increasing from 6.4 percent last year to nearly nine percent in 2003, moving up two places to the fifth spot.  Yeah, brown.

While brown is up, green is down. Medium-dark green, a color leader of the 1990s, has dropped out of the top 10 colors for luxury vehicles, but still made moderate gains in the full/intermediate and the SUV/truck/van vehicle segments.  Reds have been refined and updated with slightly cooler, bluish hues or made more brilliant with tinted clearcoats to remain extremely popular with consumers.  The increased popularity of more expressive colors such as bright blues, reds and even yellows indicate an increased sense of adventure among consumers and automotive stylists. In fact, yellow has emerged as a top-10 color in the sport/compact segment.

"Neutrals such as silver, white and black will always be major parts of the automotive color palette, but we can expect to see a wider range of color options in the near future," said Daily. "Newer models, such as the SUV/passenger car crossovers with their sculpted designs, can effectively use new treatments for neutrals or explore a range of high-chroma colors to create a stronger vehicle identity."

Cleveland-based auto writer Luigi Fraschini longs for the return of purple and orange cars, but that's just him being him.