Roger M. Woodbury
rmwoodbury at downeast.net
Sat Aug 17 21:47:30 EDT 2002
Wow! A lot of questions, and I didn't expect any, really. Probably I
should begin by saying that Royal should delete everything from here on so
his "buzz" won't be dulled.
But your questions do deserve answers and although I have been out of the
insurance industry for a dozen years, I think I can make some general
statements that will prove quite accurate, and serve as a guide for you and
others. Insurance policies and insurance companies can be wonderful
adjuncts to a happy and successful life in this culture, provided everyone
understands what coverages, policies and premiums are intended to do, and
don't expect any of that to perform miracles or functions never intended.
Lastly, let me state firmly that I am not an apologist for the insurance
industry: one of the reasons that I "retired" very, very early, was that I
no longer could support what I was seeing in the industry in this state and
a whole lot of other things that are irrelevant to this discussion.
Your concerns with track, or driver's ed exposures are, I feel well founded.
The most obvious point of risk is that to your vehicle. Before you drive
out onto any track in your car, ask yourself if, in the worst case, your car
was destroyed and there was NO insurance, could you withstand the loss. If
the answer is yes, then ask your insurance agent if there will be any
coverage for your car if you participate in whatever kind of track event it
is. Be VERY specific regarding the type of event, where it will be taking
place, and under whose auspices and what the purpose of the event is. When
the agent responds, ask him to get it to you in writing.
If you are going to participate in some form of track event, ask him if the
policy that you have will apply to bodily injury and property damage to
others from such activities. Get that in writing also. Be specific
If you have an employer sponsored health and accident insurance plan, MAKE
sure that there are no exclusions from motor vehicle accidents that occur
off the public highways. So also your life insurance, although I know next
to nothing about life insurance, and always have had to ask my life agent
these same questions. Example: a lot of people are licensed private pilots
and fly for recreations. A LOT of these people don't realize that they have
NO coverage when they are flying as pilot in command of a light aircraft for
recreational purposes. Not all companies are alike, so the question is
important. I am a licensed pilot and used to fly for business and for
pleasure. I asked, and found that my company....Northwestern Mutual....did
in fact NOT exclude the activity. So, ask the question before
Now, there is specialized coverage for both your auto and for bodily
injury/property damage to others available for "weekend racers". It is
available from specialty, or "surplus and excess insurance brokers" and your
own licensed insurance agent or broker can buy it for you. There is no type
of "umbrella" that will cover this, plus your house and your
cars......different type of insurance, different type of risk, and probably
a different agent. The three types of insurance are not really the same, so
will be handled differently.
Also, find out if the sanctioning organization provides any sort of coverage
for participants....they might. Of course, as you know, you will sign a
liability waiver prior to entering, so you need to ask how all of this works
prior to spending your money and getting involved. You might (or might
not)like what you hear.
Now, with your analysis of your auto rating, you are partially right.
Generally, an auto policy always follows the car. The PHYSICAL DAMAGE
premium (comprehensive and collision) rating is primarily based on the make
and model of the vehicle itself. However, the liability and medical
payments portions of the policy are really rated, as much as possible, on
the age, sex and individual experience of the drivers who present the
exposure. Now, in this house there are three vehicles....Audi V8, Audi 100
CS Avant, and GMC 3/4 ton pickup....and two drivers. We get a discount for
fewer drivers than vehicles, and also get low mileage discounts, plus other
"credits".....but all of these figures are off the insurance company's rates
for these vehicles, here, where they are primarily garaged. That carrier is
USAA, for those who qualify for membership in that organization.
I am sure that the insurance carrier providing your coverage probably has
classified you as the principal operator of the motorcycle and whichever car
you have said that you primarily drive. Your wife is classified on the one,
but the rating tha tyou are receiving is based on what that company wants to
do with you, and not necessarily just the actual exposure. You might well
shop around as your anniversary draws near, IF your driving record is
perfect for at least three years, and you might find that you can save some
Also, some insurance companies will combine the automobile and homeowners
insurance on one policy form. These combined polices sometimes effect a
rate savings, because their rating takes into consideration the overall size
of the premium that the account generates. These are specialty policies not
universally provided, and are usually a product offered by an insuror
through a special "filing" in the insurance regulatory department of the
state. I don't know how common it is now, as it was just becoming more
available when I left the industry entirely in 1990.
Your '84 Audi should be really inexpensive to insure at this point, BUT the
liability insurance premium will be exactly the same as any of the other
vehicles, IF the mileage is the same at the time the policy is issued. That
is to say, that the physical damage insurance should be really cheap,
because although the car might have a relative high cost of repair, it is in
automobile insurance parlance, very old, and thus it won't take much to
total it at time of loss, so the actual cost of repair is low compared to
the premium collected. I think that at this point, the '84 Audi shouldn't
be insured as an object, and that you should seriously consider not carrying
collision or comprehensive insurance at all. If you prang it, you prang it,
but what is it REALLY worth, and are those premium dollars really worth it?
Your question about "stated value" insurance is interesting and appears on
all of these lists from time to time. Basically, I do not feel that "Stated
value" insurance, or some times called, "Agreed Amount" insurance is worth
buying except for certain types of very specialized cars....perhaps that 300
SL Gullwing coupe that you are thinking of adding to your stable. Actual
Cash Value means just that. The actual, real value of the car at the place
of garaging, at the time of loss. This is NOT some "mysterious" book value,
but the value that the car would fetch in the marketplace, and this can be
verified by the local dealers of automobiles even after a loss, through
photographs, and file folders of service records. ACV usually works really
well in settling claims, IF documentation is provided when it is needed.
The type of insurance representative to deal with is fairly limited for most
personal lines policies. Let me define the delivery systems for most
insurance for most people. An insurance agent is a person who sells and
provides certain levels of insurance policy service. Almost everyone buys
their auto, homeowners, boat, motorcycle, umbrella, camera floater, etc,
insurance from an insurance AGENT. That insurance agent may well represent
one or many companies. If he/she represents several or many companies,
generally, he/she is an independent insurance agent. He owns his own
business and has contracts with the insurance companies that he/she
represents. He likely has certain amounts of underwriting authority, and
can, according to the rules as set forth in his contract, issue binders for
certain types of coverage, pay certain kinds of claims by issuing drafts
drawn on the insurance company. The independent insurance agent also is
responsible for collecting premiums in some cases, and paying for the
policies himself, at some contracted time in the future. Here's an example:
In my agencies I was contracted with about a dozen different insurance
companies. I had binding authority for certain types of
coverage....including personal automobile, homeowners, commercial fire and
some forms of commercial liability insurance. The amounts of my binding
authority differed from company to company, and I had to learn what each
company would and would not do in the way of issuing coverage. I knew, for
example, that one of my local, "mutual" fire insurance companies would never
accept a binder of coverage for any form of restaurant operation, whereas a
couple of my other, larger insurance companies would allow me to bind as
much as $250,000 of property insurance for restaurants, provided I had
personally completed an inspection and would certify that certain aspects of
the physical plant and operation met certain types of standards.
I also could pay certain types of first party losses. I could pay for any
form of glass claim, either for an auto windshield, or a large plate glass
window. I could NOT pay any sort of loss for fire, or theft, or anything
that required a police investigation. I had a file in the safe in my
offices with company claims checks that could be used....and which I almost
NEVER used. I prefered to have the insurance company pay for everything
themselves, except for, say a broken windshield. Naturally, the paperwork
was considerable and had to be forwarded to the insurance company claims
office. I once bound coverage on a restaurant the Friday before it opened
for the summer season. I felt comfortable about it as the owner was
operating the business himself, and had been in business for some time. The
night AFTER it opened, which was the day before Mother's Day, the kitchen
and back dining room burned to the ground in the middle of the night, and I
had just bound around $300,000 of coverage. Man! did I sweat, but the Fire
Marshall investigated and found that the cause of the fire was a two year
old, continuously heating coffee urn that had failed...the valve that
admitted fresh water when needed malfunctioned, and the burners didn't shut
off as they should, and Voila! BIG loss.
Now, there are other agents who represent only one company. These folk are
sometimes independently employed, and sometimes they are employees of the
insurance company itself. State Farm uses so-called "captive agents" like
that. And there are many others. Generally, the underwriting of those
companies is a bit more restrictive....either the applicant fits the "mould"
desired by the insurance company, or it doesn't. Some of these agents also
serve as a BROKER, and can provide coverage for insureds that they "buy" for
them through other insurance outlets. Example: Soandso is insured with
State Farm, and has been insured there for many years. But he owns a very
special, high speed Cigaret-type boat that the State Farm office won't or
can't insure. But his State Farm agent arranges for him to have coverage
through Ace Insurance Specialties, which has a special high performance boat
policy from a specialty insurance company. The State Farm agent is licened
to do that in the state, the coverage costs $650 per year, and the State
Farm guy makes $65 in brokerage commission for handling the transaction. A
lot of specialty lines coverages are written like this...liquor law legal
liability, some forms of crop insurance, and high risk, or some types of
high risk insurance is ONLY provided this way generally. Once I provided
"Producers Liability" coverage for a Dr. Hook concert. I got the policy
from a specialty, or surplus and excess insurance coverage
broker...somewhere....out of state, I think. The policy for the one night
concert was, if memory serves, around $2,000, and it seems my commission was
a whopping 5%...the telephone calls alone cost almost that much, but it was
interesting and for a good client.
Then there are the "Insurance Brokers". A broker generally does not have
contractural relationships with the insurance companies he sells for, and
the number of insurance companies that the broker can buy policies from is
enormous. Normally a broker would not be selling insurance to an individual
policy holder, such as someone who is insuring his home or automobile.
Rather the broker would probably be selling to another retailer. However,
for certain types of very large and complex risks....such as a manufacturer
or a huger retailer or gigantic property manager....the insurance coverage
is a sort of policy, that is assembled using many layers of insurance
coverage, with many different forms of deductibles or other "inside"
limits...and such things would be assembled by a BROKER. The broker
probably doesn't earn a commission, but is paid a fee by the insured for
providing loss control, risk management and insurance policy services. I
have just written a short piece about property damage liability for the
(Mercedes) SL Market Letter, that is in response to the destruction of an
engine in a 380SL as the result of an oil change done at a Walmart. And in
case anyone is still reading this, it was interesting to find out that
Walmart self-insures almost all losses up to a certain amount, and has its
own insurance adjusting company that does nothing other than handle Walmart
claims. In the case of the 380SL owner, while the car was probably only
worth around $9000, the engine repairs cost more than $12,000. When the
final data had been collected, Walmart got a check for the engine rebuild
into the owners hands overnight.
Now, having said all of this, the insurance delivery system is a little
different in some areas than in others. In some of the more rural areas,
the 'selection' of agents is limited, and in some places there is really
only one. In the more populous areas, there are a LOT of insurance sales
organizations around, and a lot of people to chose from. My advice about
how to chose an insurance representative is to find someone that you can
talk with and feel that you can trust. In a lot of big organizations, you
will never get to actually talk to someone who REALLY knows what is what. A
lot of agencies do not want their "front end" people to really understand
much more than the application that they are filling out. I recommend that
you ask the person to whom you speak if they are a licensed insurance agent.
Do they PERSONALLY hold a licence, or do they just work there. That can
make a difference. In my agencies, we required EVERYone who was employed
there to be fully licensed for the lines of coverage that we carried. That
was unusual, and maybe it still is.
I personally favor an independent insurance agent, because generally they
will represent a number of different companies and should you develop an
accidental history of losses, they can usually keep you insured for
relatively consistent rates, whereas a one-company agent might not be able
to do so.
But above all, be comfortable with the insurance information that you get
from whoever it is that you are talking to. And in the case of special
risks....like automobile 'events' of various types....get the decision about
coverage in writing. The worst thing that you can do is assume that
something is covered, when there may be a question.
Keep asking and you will not have a "no coverage" surprise.
Disclaimer: I have the highest regard for State Farm Insurance Company and
its agency force. I have NEVER met a State Farm agent who didn't meet the
highest standards of ethical and professional behavior. I name them only
because of their enormous size as an underwriter of automobile insurance.
I will also say that I have been out of the industry for a dozen years. In
that time, most legal restrictions keeping banks from being in the insurance
business have been swept away. That may or may not be a good thing, but it
should give a broader opportunity for the aware, and serious purchaser to
buy more varieties of insurance at reasonable and stable rates. If any
insurance agent reading this disagrees with my analyses and wishes to
discuss it with me, I welcome the exchange of information and suggest that
it should take place on these lists, as it will benefit all who may have an
insurance need or question.
----- Original Message -----
From: "Bernard Littau" <bernardl at acumenassociates.com>
To: "Roger M. Woodbury" <rmwoodbury at downeast.net>
Cc: <200Q20v at audifans.com>; <quattro at audifans.com>
Sent: Saturday, August 17, 2002 3:09 PM
Subject: RE: Wham!
> Hi Roger,
> As I am considering a local driving school track event next month, thus
> been paying close attention to this thread.
> Early on in the thread it sounded like coverage for my car might well be
> excluded for such an event. I could stand the loss of the car -- it's an
> old old Audi. However, I was starting to figure out that much of my
> coverage is also covered on that same policy. Now you have mentioned this
> explicitly. Loosing medical on the auto would be not so good. Like you
> said, don't go there. You have me thinking that I don't know all the
> exclusions on my or my wife's medical plans through our employers. I
> wondering just a bit if I have any coverage while on the track.
> Since you obviously have some insight and experience into this, what would
> you suggest to do for coverage for this sort of event? Is this something
> can and should get through my auto insurance agent? What should I ask
> Is something like this better handled through some sort of umbrella policy
> over me, the cars and the house?
> While I am asking questions on the topic of insurance :-) We have two
> drivers with 3 cars, a truck and a motorcycle. We pay the same rate as
> would a family with five drivers. An auto policy is attached to a
> and the drivers of that vehicle are taken into consideration to set the
> rate/risk, but the principal part of the rate is based on the car. Thus,
> pay quite a bit more rate than what I see as the risk, given our
> I know many of the people on this list are in a similar situation. Is
> a more cost effective way to insure the fleet for use by two drivers?
> Another question :-) This one is more Audi related. The insurance rate
> a vehicle is set in part by the original value of the vehicle, yet the
> coverage only covers the current value. Audi's were expensive cars when
> new, so I pay more for insurance for my '86 4kq than I would for most
> types of cars of the same current value. Is there a way to bring the cost
> of the insurance more in line with the current value? I know people that
> have increased the value of their cars with special insurance for a
> car. Would going with such a policy, with an low agreed-upon value, be a
> way to bring the rate in line with the coverage?
> Finally, what kind of insurance representative would generally be best to
> work with on the specifics of any of these above items? I have been using
> an agent, who I see basically as a front end for the single company they
> represent. I understand brokers deal with multiple companies. Are there
> other options, or different kinds of agents or brokers that would be more
> desirable to work with?
> Your statement "People totally misunderstand automobile insurance" is
> partially correct, however, I think many of us just plain do not
> _understand_ automobile insurance, or insurance in general.
> Thanks for the eye-opening commentary, and for the information so far!
> Bernard Littau
> Woodinville, WA
> '88 5ktq
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