Tonight CNN ran a big piece on how insurance companies are trying to settle claims for next to nothing compared to what they’re worth, in many cases not even coming close to covering medical bills, let alone covering the repair to your vehicle.

While the television report was more in-depth, this article covers the high points.

The whole concept of this report brings up the question: If insurance companies are in business to insure your assets, but they’re also in business to make money for themselves, isn’t that a conflict of interest?

After all, every penny they shell out in claims is one less penny they show on their bottom line.  In effect, its in their best financial interest to not settle any claims at all, or at the very least, the lowest payout possible.

In the article, as well as in the television piece, it is revealed that insurance companies prefer to have you take them to court over claims, knowing that if they can drag out the claim, they stand a good chance of paying you much less than your claim is worth.

“The strategy, according to former Allstate and State Farm employee Jim Mathis, relies on the three D’s — denying a claim, delaying settlement of the claim and defending against the claim in court. -Source“

From a business aspect, this makes perfect sense.  The business is in business to make money, not to give it away.  It’s too bad though that when you pay your premium, you expect to have the company pay you for your claim, should you need it.  After all, isn’t that what insurance is for?

Insurance companies will state that they fight claims in court to battle insurance fraud, which they claim is running rampant and is the direct cause of rising premiums.  The problem is, insurance fraud accounts for only 4% of the claims they will pay out, and that number hasn’t risen for years.  So it’s tough to say that insurance fraud is “running rampant”.

To compound this problem, as an owner of an automobile, you don’t have a choice.  You must have insurance for your car.

It sure compounds the “conflict of interest” issue, doesn’t it?

Insurance

There are times I love my insurance company, and other times I’m not quite as fond.

However, whenever your insurance company sends you money for no apparent reason, it’s always a good thing. Today I received my yearly USAA dividend check to the total amount of $58.91. Last year is was just shy of $100 and in previous years it has been upwards of $150.

Overall, USAA will return more than $6.4 billion to its members in 2006 in the form of dividends, claims payments, distributions and other monetary benefits. This adds up to almost half of the total revenue USAA brought in throughout the year.

While shopping for car insurance, USAA couldn’t be beat, and they narrowly beat out their competitors for home owners insurance. However, their landlord packages are terrible! Effectively, USAA will insure your rental property for the rebuilding cost in today’s dollars. So they initially insured my rental property (which is valued at $125,000) for $270,000! Consequently, my premium was $1500 for the year.

So while USAA does offer some great competitive rates, it still pays to shop around.

Click here to see if you’re eligible for USAA membership.

Insurance, Rental Property

I just received our annual homeowners insurance renewal, and to my surprise, USAA is actually reducing our premium by just over $150!

Accompanying the new premium was a letter stating that USAA has recently changed the way they calculate the premium to ensure the premium reflects the risk our policy presents to USAA.

A few of the factors they used to calculate the new premium:

It’s nice to see the insurance company is sending our premiums in the right direction, and this reminds me that we need to inventory our personal belongings and make sure we’re fully covered.

Since our budget is based on the old premium, we can definitely take advantage of additional coverage, should we need it.

Insurance