Beyond the Bottom Line

Mark Lussier tells the story of a newly licensed driver backing out of her driveway in South Hadley who didn’t see the 85-year-old walking along the sidewalk. They met, and he fractured his hip and was in rehab for six months.

“Fortunately, the lawyers weren’t bloodthirsty, and they settled for the policy limit for bodily injury,” said the co-owner of Lussier Insurance in West Springfield, noting that, too often, lawyers aim for the maximum award, putting the defendant’s house and savings at risk.

Yet, “in its infinite wisdom, the Commonwealth of Massachusetts has determined that $20,000 of bodily-injury coverage is all you need to be legal,” he told BusinessWest.

Then there’s property-damage coverage on auto-insurance policies, which has a minimum requirement of $5,000. “I had a case not too long ago where someone hit a hydrant and a parked car, and then a porch. I’m guessing $5,000 wasn’t enough to pay for all that stuff. But it’s interesting to see how many people have only $5,000 for property damage.”

Many bare-bones policies come from the direct writers like Geico and Progressive that saturate the airwaves with ads focused only on premium price. But, in reality, insurance customers can get policies for not much more than the bare-bones pricing of the online marketers, but with much better coverage, explained in detail, simply because of the flexibility Massachusetts insurers have enjoyed over the past 12 years — flexibility that, for the most part, didn’t exist before.

Indeed, for much of the past century, auto-insurance rates in Massachusetts were set by the state Division of Insurance. Anyone who requested a premium quote for a certain level of coverage would receive the same price from any number of companies, unless they were eligible for a group discount.

Managed competition, which began in 2008, allows insurance companies to offer their own rates. Although these rates may vary, they must still be approved by the Division of Insurance — hence the term ‘managed.’ The result is that Massachusetts drivers are able to compare the different rates, benefits, and services offered by the insurance companies competing for their business.

“So many people are gathering information online without talking to the agent to explain the coverage, so they don’t understand at all what they’re purchasing. It’s the same old story,” said Trish Vassallo, director of Operations at Encharter Insurance in Amherst.

And, while $5,000 won’t cover the cost of a telephone pole or guardrail, injuring a person with one’s car and being undercovered is usually far worse, she explained. But that doesn’t have to be the case, as the premium difference between $100,000 and $250,000 in coverage can be as low as $10 per year — well worth the peace of mind.

Trish Vassallo

“I don’t think there’s an agent in Massachusetts who doesn’t welcome clients calling and talking to them. We like getting away from billing questions and talking about the nuts and bolts of insurance. It’s what we live for — sharing knowledge. It’s so important to make sure you understand everything you’re getting. You don’t want to learn about it after a loss.”

“That’s what we explain to them. Accidents happen, and if a building is hit, $250,000 might not be enough, but it certainly gets you closer,” she said, adding that, if a pedestrian is hit and successfully sues, $100,000 isn’t going to cover the costs.

Auto insurance, like all personal lines, is all about understanding risks and making an educated decision on what one’s comfort level is, she said — and not just settling for the lowest bottom-line price.

Bundle of Options

Under managed competition, carriers have been able to offer individualized add-ons and rider endorsements, from accident forgiveness to gap coverages to good-student discounts, and local agents say it’s important to have a conversation to get the best price for the coverage that’s actually sufficient.

“Today’s market is all about packaging and bundling insurance, and when you shop just one product, you sell yourself short in the money game,” Vassallo said.

To that end, she said, picking up the phone and talking to an agent is far superior to pressing a few buttons online.

“It’s about educating yourself, and I don’t think there’s an agent in Massachusetts who doesn’t welcome clients calling and talking to them. We like getting away from billing questions and talking about the nuts and bolts of insurance. It’s what we live for — sharing knowledge. It’s so important to make sure you understand everything you’re getting. You don’t want to learn about it after a loss.”

Part of that education, Lussier added, is understanding what’s most important to insure.

“Why buy auto insurance? In the consumer’s mind, it’s to protect the car; that’s the thing they care about,” he said. “I was the same way when I was a brand-new driver. ‘Give me what I need, whatever’ — until you have a claim. One thing I hear is, ‘I thought I had coverage for that.’”

Under the prior, regulated system, insurance providers were required to apply specific surcharges for certain accidents and traffic violations. Now, insurance companies are permitted to develop their own rules, subject to state approval, for imposing surcharges for at-fault accidents and traffic violations.

They can also include a raft of incentives, such as bundling auto and home insurance when both policies are bought from the same carrier, offering multi-car discounts or AAA membership credits, or using disappearing deductibles to reward drivers for not having accidents over a long period of time.

Then there are away-from-home discounts for college students who are on their parents’ policies, yet spend much of the year away from home without access to the family car.

“A newly licensed driver can add $800 to $3,000 to a premium, depending on whether they have their own car or not,” Lussier said. “A good-student discount can take some bite off that, and then you can get a discount while they’re away at school. Some companies require you to be at least 100 miles away to give you the discount, some only 25.”

What parents should not do in that situation, Vassallo said, is take their child off the policy completely to save some money.

“You don’t want to do that — God forbid he gets in his roommate’s car and gets into an accident, and the roommate has minimal [coverage] limits, and now the family is looking at potential harm to their assets. Companies can give discounts for students who go off to college, but you should keep them on the policy. Even though they’re not a regular driver anymore, it still provides protection.”

Limited Thinking

One rule of thumb when it comes to liability and coverage, Lussier said, is to ask, ‘how much am I worth?’

“If I’ve got a house, a savings account, a 401(k), I have to protect that with bodily-injury [coverage], then $20,000 isn’t going to be good enough,” he told BusinessWest, noting that, often, the difference between coverage levels doesn’t translate to all that much in the annual premium. For instance, he asked, what if the difference between $100,000 and $300,000 is just $80 per year?

“Do you want to take a risk for 80 bucks a year? When an accident happens, we want to know that we had the discussion and that you’re OK with understanding the risk after considering your driving habits and where you drive and what you have to protect,” he explained. “You’re saving 80 bucks to have crappy limits. We can keep your crappy limits, but we want you to tell us that’s what you want.”

Joseph Bednar can be reached at [email protected]