Introduction

 

Whenever a renewal policy contains provisions that are not the same as those in the expiring policy, the producer should call the pertinent changes to the attention of the policyholder. If the changes represent a new restriction in coverage or limitation on recovery, it is especially important that the customer be notified. It may even be advisable to obtain a written acknowledgement from the customer that he or she has been informed of the changes. Otherwise, in the event of a loss, he or she can maintain—with some justification—that somebody else owes the difference between the coverage of the old policy and the more limited protection of the new. The first “somebody” the customer looks to is the producer.

 

Whenever such a change affects the producer's entire book of business, the producer's problems of communication becomes gargantuan. How can the producer notify every customer or a majority of customers—and in such a way as to be reasonably certain that the notice is received and read? (There is, of course, no guarantee that the customer will actually read any notice, or “remember” reading it at a time when the remembering might not be convenient, but the fact that such a notice was sent routinely to all affected policyholders establishes the producer's efforts to communicate the change.)

 

Collision and Other Than Collision Coverage

 

The personal auto policy (PAP) applies deductibles only to part D, “coverage for damage to your auto.” Under this part of the policy, the insurer agrees to pay for direct and accidental loss to the covered auto of the named insured “minus any applicable deductible shown in the declarations”. Collision and other than collision are the causes of loss discussed in part D, and the deductibles apply to these items.

 

The reason for deductibles is to minimize the expenses of the insurer in instances where the damage to the named insured's auto is minimal. Deductibles also save the insured money by way of lower premiums. So if the named insured's auto is damaged to the tune of $150, and the applicable deductible is $250, the insured handles the repair costs himself and saves the insurer the claims handling expenses. In return for this, the insurer offers such coverage at a lower premium. Note that a deductible of $250 usually saves about 20% off the premium for a $100 deductible.

 

While some insureds may be reluctant to raise their deductibles—”What if I have an accident? I can't come up with $250″—the agent may “sell” the insured on the higher deductible by stressing the premium savings. For example: if the $100 deductible premium is $250, the premium for $250 deductible would be $200, a $50 annual savings. Thus, after 3 years of no accidents, the insured will have saved $150, the difference between $250 and $100.

 

Pro-actively selling higher deductibles is a positive thing for agents to do. However, when underwriting problems cause an insurer to request (or require) that an insured accept a higher deductible, the agent may need to find a diplomatic way to communicate that decision to the insured.

 

Probably the most effective procedure is to include a “change notice” with the renewal policy. The notice should tell the story as plainly and simply as possible, with a clear invitation to the customer to call back for more information if that is wanted. If the customer has a choice, it is important that he or she be made aware of it.

 

Sample Change Notice

 

An example of such a notice dealing with changed deductibles follows. This is offered merely as a sample or a starting point that producers might choose to use in communicating with the insureds. The premise here is that the renewal policy has been issued with $300 deductible on the collision coverage and a $200 deductible on the other than collision coverage; furthermore, a buy-back of some sort is available.

 

Dear Customer:

 

$100 USED TO BUY A LOT OF GROCERIES. (Ask your parents if you haven't been buying groceries that long.)

 

And $200 used to buy a lot of repairs to the 1996 Ford or Chevy. Back in the “good old days” it made sense to buy your collision insurance with a $100 deductible. (You paid the first $100 in case of an accident.) That was a lot of money, but it was a practical way to keep the cost of collision insurance in line.

 

Through the inflation of the 1970's and into the rest of the century, $100 didn't mean so much anymore. The price of $100 deductible collision insurance had to go up because more and more repair bills were scaling over the $100 limit. So, to keep the price of collision insurance down, everybody began buying it with a $200 deductible.

 

Well, you know what $200 will do for you at the repair shop today! So you can imagine what little effect a $200 deductible has on the price of your insurance now. So, to hold the line on price, your new policy has a $500 deductible for collision coverage. And there is a $200 deductible on other than collision coverage.

 

It's a sugarcoat on the pill we know, but these deductibles don't “cost” you anything unless you have a loss. On the other hand, to keep to the old arrangement would mean a definite—and substantial—increase in your cost. If you want to know how much—and you can still buy automobile insurance with lower deductibles if you want it—call us, by all means.