Though no one should leave the garage without adequate coverage, the penalty for careless buying can be stiff.

by William B. Mead

Like weary tourists without a guidebook, most of us buy automobile insurance more by chance than design. It need not be so. Choices there are, among companies and coverages. Without much experience, you can find out which companies are financially solid and which are not and compare their premiums. You can also weigh policy options, saving on some items and perhaps going heavy on others. A wise choice may improve your coverage and save you money.

In other words, buying car insurance is like buying most high-priced things. You narrow your selection to a few reliable brand names, decide which accessories and features you want, and go comparison shopping.

About 900 companies sell car insurance, and most or all of the firms you’ve heard of are financially stable. If you have doubts about an insurer, ask any insurance man to look up its General Policyholders’ Rating in Best’s Insurance Reports. If the rating isn’t A-plus, shop elsewhere.

A high rating in Best’s says the company is financially solid but doesn’t tell you anything about the quality of its service. That quality can range from great to intolerable. You’ll want a company that pays claims promptly and fairly and that responds to your questions and complaints. Above all, you’ll want a company that sticks with you after you have been in an accident or received a couple of tickets for speeding or running traffic lights. Probably the most serious complaints against some insurers have come from people whose policies were abruptly canceled or not renewed. In a recent survey, 14% of motorists said an insurance company had dropped them.

If your present insurer has given you good service, there is probably no reason to switch. A so-so company may have outstanding agents and adjusters in your city. A generally excellent firm may not. Neither the size of an insurance company nor its price says much about the service you can expect from it. There are big and small companies with fine reputations; some companies noted for low premiums have built loyal customer followings. Nor does quality depend on whether a company sells directly or through agents.

All major companies have both satisfied and dissatisfied customers, but some clearly give good service more consistently than others. The most recent large-scale published survey of individual auto insurers’ performance, conducted by Consumers Union in 1970, drew responses from 230,000 car owners. Out of 24 companies evaluated in the survey for fairness and efficiency in servicing claims and renewing policies, two did particularly well: State Farm Mutual Automobile Insurance Co., the country’s largest insurer of cars, and United Services Automobile Association, a mail-order company based in San Antonio. The remaining four of the industry’s big five — Travelers Indemnity Co., Aetna Casualty & Surety Co., the Hartford Insurance Group and especially Allstate Insurance Co. (a Sears, Roebuck subsidiary) — were ranked as below average in service.

Herbert S. Denenberg, Pennsylvania’s knowledgeable and outspoken insurance commissioner, buys his auto insurance from United Services (see the box at right), but you may not be able to: the firm limits sales to present and former officers of the armed services and a few other government agencies. (A larger, also well-regarded mail-order insurer, Government Employees Insurance Co. of Washington, known as GEICO, sells to white-collar workers as well as government employees and active or retired military officers.)

Personal opinion colors anyone’s opinion. Denenberg’s enthusiasm for United Services has been intensified by what his office considers the excellent handling by United Services of claims resulting from Agnes, the tropical storm that flooded Pennsylvania last summer. I myself have been enamored of State Farm ever since I knocked down a gasoline pump with my aged Plymouth during a beery college evening 17 years ago. State Farm paid without a whimper, and I remain a devoted customer.

Having narrowed your choice of companies, you must select your coverage. Start with liability insurance, which Denenberg calls “a lawyer’s paradise and a consumer’s hell.” Every state either requires this insurance or makes life difficult for motorists without it. Liability insurance pays claims made against you for damage or injury in accidents caused by you, a member of your family or someone else driving your car with permission. This insurance is supposed to pay the victim’s medical bills, lost wages, burial expenses and car repairs, and may compensate him additionally for his “pain and suffering,” a claim beloved by accident lawyers but not by advocates of no-fault insurance (see page 74). Your liability insurer also provides a legal defense if you are sued after a wreck.

The basic liability limits of 10/20/5 mean that in any single accident the policy will pay up to $10,000 for one person’s injuries, up to $20,000 if more than one person is hurt, and up to $5,000 for damage to the other driver’s automobile — or house, or store, or prize Afghan hound should your car so stray.

Since 10/20/5 covers most accidents, much higher limits come cheap. To make things simple, let’s say 10/20/5 costs $100 a year. Then the economics of liability coverage works like this:

So you can increase your protection 25-fold with a premium increase of 45%. It’s worth the price. Liability is the insurance casino’s wheel of fortune, and no driver is immune to the chance combination of an accident, a smart lawyer and a jury sympathetic to the kindly old postman consigned to a wheelchair by a nudge of your bumper.

It is common, but not wise, to buy only enough liability insurance to cover your personal assets. Does $50,000 liability protect your $50,000 nest egg? Not if the injured driver successfully sues for $100,000, in which case your assets and insurance are both soaked up.

To be sure, a poor man can get by with minimal liability protection. Accident lawyers seldom sue for nonexistent assets, and if worse comes to worst, bankruptcy can provide an escape from hopeless debt. But that strategy makes sense only if your income, assets and expectations are depressingly seedy. Otherwise, for your own sake, not to mention that of some poor soul whom you may inadvertently cripple, it is wise to buy high liability limits.

For the well-to-do, an “umbrella” policy is also worth considering. Typically, it is sold only to those who already have 100/300/10 auto liability plus $50,000 home-owner’s liability. If you own a boat or work in a profession vulnerable to liability suits — if, for example, you are a surgeon, lawyer or barber — you will need additional liability policies to qualify. The umbrella, which insurance salesmen call by trade names like “Success Protector,” boosts your liability coverage to $1 million for an additional yearly premium of about $60. It covers any liability you may incur, from a car wreck to a golf course skulling.

Your own liability policy does not provide payments to treat the wounds of those injured in your car. A separate coverage for that purpose, called medical benefits, closely resembles health insurance except that it pays only for injuries caused by a car accident. You might presume it would be sold as supplementary protection, picking up where your basic health insurance left off. That would reduce your car insurance premiums in a sensible way. But medical-benefits coverage usually isn’t sold so sensibly: it is primary coverage, probably duplicating your health policy. Many victims collect on both, thus profiting from misadventure. And who can blame them, since they paid for both policies? Duplicate benefits, however, are grossly inefficient, adding to the cost of everyone’s insurance.

Some auto insurance companies offer an escape through the so-called “special policy,” a package deal that cuts the premium about 15% by stipulating that, among other things, medical benefits will pay only for bills not covered by other health insurance. If the other parts of the special policy fit your needs, it’s a good buy.

Does a motorist with adequate health insurance need auto medical benefits at all? Well, yes, since they also cover guests in the car. Archaic laws in many states say an injured guest has no claim on you and your liability insurance. To protect your passengers, you might wish to buy a cheaper medical-benefits policy covering guests only, but you can’t: it’s all or nothing.

Fortunately, the premiums are not high. If the rate for rock-bottom medical benefits of $500 per person is $7 a year, you’ll pay about $8 for $750, $9 for $1,000, $11 for $2,000 and $19 for $10,000. Not too bad a buy, considering that if you injure a wagonload of kids, each one may be covered up to$10,000.

Next on the car insurance shopping list is collision coverage. No matter who is to blame for a crash, collision insurance will pay for the car repairs. If the other driver caused the wreck, your insurance company will pay you, then turn around and collect from his insurer. Lacking collision insurance, you could file your own claim against the other driver and his company, but you might have to wait longer to collect.

Banks and other lenders usually require collision coverage until a car is paid for. After that, consider dropping it. The richer you are, the less you need it. If you could afford to replace your car without borrowing the money, chances are that you would be better off without collision coverage. For one thing, 35% of the premium is soaked up by insurance company overhead, and you can save that expense by being your own insurer. For another, collision damages over $100 are tax deductible: if you are in the 50% tax bracket, a serious wreck would cost the government almost as much as it costs you.

The older your car, the less you’re insuring. A $6,000 beauty is just another $100 jalopy ten years later and isn’t worth insuring: collision insurance never pays more than the resale value of a car. Most owners of late-model cars may feel the need of some collision protection. They should consider buying coverage with the highest deductible amount they could afford to pay out of pocket. A $50 deductible policy means you pay the first $50 of repairs, and your insurance company pays the rest. Typically, if a $50 deductible costs $100 a year, a $100 deductible will cost about $85. The extra $50 of coverage costs $15 a year, which is almost certainly a bad bargain. With a $250 deductible the premium drops to $50.

Much the same logic applies to comprehensive coverage, which repays you for car losses caused by theft, vandalism, flood, fire and other vagaries, including quite commonly the pebble, kicked up by another car, that cracked your windshield. Again, roughly 35 cents of your premium dollar pays for insurance overhead. Again, the tax deduction for losses over $100 applies. And again, the more deductible, the lower the premium. Typically, if full comprehensive costs $28 a year, $50 deductible will cost $13, and $100 deductible can be had for $10.

Many states now require “uninsured motorist” coverage, which pays if you’re hit by an uninsured or a hit-and-run driver or someone whose insurance company is insolvent. This coverage works like liability insurance, paying only if the other driver was at fault and covering everyone in your car for medical treatment, lost wages and pain and suffering up to a usual limit of $20,000 per accident (or whatever minimum limits are set by your state’s financial-responsibility law). Uninsured motorist coverage is inexpensive and worth buying, required or not.

One cheap frill you can probably do without is towing insurance, often called emergency road service. It typically sells for $2 or $3 a year and pays up to $25 per tow — too small a risk to justify insurance. But towing insurance can be a good buy with a company that imposes no claim limit, especially if you travel the boondocks. One adventurer bought unlimited towing coverage before an Alaskan tour. When his car conked out on the tundra, he made his way to the nearest town, several hundred miles away, and called his insurer. Instead of towing his car, the company found it cheaper to buy him a new one.

After you have narrowed your list of insurance companies and have decided on a package of coverages, it is time to start comparing prices. Premiums can vary wildly. A report last July by the New York State Insurance Department showed company-to-company premium differences of up to 50% for liability coverage. Our own shopping tour turned up even larger spreads (see the box on page 71). Since different companies use different territorial ratings, New York’s best buy may not be Los Angeles’ or Chicago’s. To get the lowest price, you must draw up a precise list of specifications and submit them to the companies of your choice.

Keep an eye out for discounts. Insuring two or more cars with the same company usually costs less than insuring them separately. Discounts sometimes remove a bit of the sting from the painful premium hike imposed when your child starts driving. Completion of a state-certified driver-training course may provide a 5% to 10% discount, and good school grades another of up to 25%. If the young driver goes away to college and leaves you the car, you may have a reduction coming.

Before buying a car, check with your insurance man. There are different premiums for different cars, and most companies charge extra for “muscle” cars. Because federal regulations require 1973 model cars to have stronger bumpers, many insurers are cutting collision premiums about 10% on new cars. Allstate, a leader in the drive for crash-worthy cars, gives higher discounts on makes exceeding the federal standard: 15% on all Chrysler Corp. cars, Saabs and some American Motors models; 20% on certain American Motors models with an optional energy-absorbing bumper.

The price of car insurance goes up sharply if you live in a big city or drive to work there from a suburb. If you own a second home in the country, see whether you can legitimately register your car and insure it there. The premium savings could be 50% or more. Naturally, a clean driving record holds your premium down. But so-called safe-driver rates cut two ways. One minor accident can push up the premium more than if you had paid for the damage yourself.

Despite the clear dollars-and-cents advantages of vigilant shopping for car insurance, not even the experts are immune to careless buying. Herbert Denenberg, the Pennsylvania insurance commissioner, sold his car last January, but at our request looked up his old insurance policy. Denenberg recommends against collision coverage on an old car, but found he had been carrying collision on a ’64 Chevy.

“I just never got around to dropping it,” the commissioner explained.

How two experts insure their cars

Herbert S. Denenberg, 42, for eight years a professor of insurance at the Wharton School of Finance and Commerce, has been insurance commissioner of Pennsylvania since January 1971. Thomas C. Morrill, 63, vice president of State Farm Mutual Insurance Co., has been an insurance man since 1929. The rates for Morrill’s insurance are current and reflect a 10% discount for two-car coverage. Those for Denenberg were in effect last

Denenberg’s coverage, written by United Services on a 1964 Chevrolet:

January, when he sold his car, an eight- year-old model overloaded, he admits, with needless collision coverage. Both motorists benefit from the comparatively low premium rates accorded residents of smaller cities. “I found a magic formula for reducing auto insurance premiums,” says Denenberg. “I moved from Philadelphia to Harrisburg.” Morrill lives in Bloomington, Illinois. Neither man has a child of driving age.

Morrill’s coverage, written by State Farm on a 1969 Cadillac:

Curing the fault in the system

In 1936 a law student named Richard Milhous Nixon wrote a thoughtful article observing, “It may be said that there has been a steady erosion of fault as the ground of shifting the plaintiff’s loss to the defendant.” That erosion has culminated lately in the national drive for no-fault auto insurance. Until the drive succeeds, even the smartest shopper for insurance will have to settle for coverage that is fundamentally flawed.

Auto insurance, like other insurance, saves people from financial hardship by shifting the burden of their loss to a community of people sharing similar risks. This good social principle miscarries in car wrecks, however, because auto insurance is designed primarily to protect careless drivers, not their victims. Negligence-liability laws dictate that the motorist who causes an accident must pay for it. Almost every car owner carries liability insurance to protect himself from costly accident claims, but for his victim the payoff is uncertain at best. Before the insurance company will shell out, blame must be fixed and injuries translated into dollars. The process can take years, and the payoff often bears little relation to the actual loss.

A two-year, 24-volume study published in 1971 by the U.S. Department of Transportation concluded that liability insurance reimburses fewer than half the 500,000 people killed or seriously injured each year on the highways. Insurance companies, when they do pay, are likely to haggle strenuously over large claims while overpaying small claims. For victims with losses of $25,000 or more who do collect, the Department of Transportation found that the average recovery is only one-third of the loss. By contrast, those with not more than $500 of medical bills and wage losses receive an average of four and one-half times their actual loss. It is cheaper for insurers to overpay those small claims than to fight them.

Nevertheless, costs are high. From 15 to 20 cents of your premium dollar is pocketed by trial lawyers battling to prove that the other driver — perhaps you — caused the accident. Those legal costs are piled atop the usual overhead of sales commissions, administrative costs and profits.

According to the Department of Transportation study, only 44 cents of the liability premium dollar is returned in benefits. That, according to the study, gives auto liability “the highly dubious distinction of having probably the highest [meaning worst] cost/benefit ratio of any major compensation system currently in operation in this country. ”

Compared with the disjointed insurance package sold today, no-fault is a model of simplicity. Under no-fault, your insurance company pays your medical bills, lost wages, burial expenses and car repairs, up to high limits, and the other car owner’s company pays his. There need be no determination of who caused the accident; liability laws would not apply in most accidents. The money would be paid when it is needed. Coverage for all motorists would be mandatory; society would not have to care for the maimed who fail to collect under the liability system.

Politicians have hawked no-fault to the public largely on the promise of reduced premiums, but that claim may be specious. In Boston, where car insurance prices historically have been the highest in the country, the premium for a complete package of auto insurance, including the no-fault coverage that has been compulsory since 1971, remains in the stratosphere. Coverage for collision and other property damage is fiercely expensive.

Despite Boston’s special problems, Massachusetts’ experience as the first no-fault state has shown that some savings are likely under no-fault. The premium on compulsory bodily injury coverage has come down by a handsome 42.6%, with further cuts in the offing. The new compulsory coverage contains both liability insurance and no-fault coverage paying up to $2,000 for the medical expenses and wage losses of each injured person. No-fault champions loudly trumpet those achievements, overlooking the fact that the compulsory no-fault protection is far too small, leaving the seriously injured to the untender mercies of the liability system.

A comprehensive no-fault system, which would reimburse in full virtually all accident victims, would involve some substantial new costs. The system would have to cover extensive rehabilitation of the crippled and lifetime income for the totally disabled. Offsetting those new costs, however, would be some big savings. Most of the 15 to 20 cents now pocketed by trial lawyers would be squeezed out of the premiums. Small claims — by far the most numerous — would no longer be overpaid, and false claims for pain and suffering would be largely eliminated. In addition, you would no longer have to pay for overlapping health and auto insurance.

Insurers opposing comprehensive no-fault coverage claim it would greatly increase premiums, while those favoring it predict a small premium cut. Neither group has calculated the effect of an important potential saving — the option of buying coverage on a deductible basis, like collision insurance. The deductible would let you buy protection for only those costs beyond the reach of your basic hospitalization, surgical and major medical insurance. State Farm Mutual Insurance Co. estimated for us that a $1,000 deductible would result in a 25% saving on premiums.

Another promising route to lower premiums appears to be group auto insurance, for which no-fault is well suited. Because group insurance is by nature a wholesaling operation, the agent’s commission of 10 to 20 cents on the premium dollar would be greatly reduced. But first, obstructive state laws and regulations lobbied by insurance agents would have to be repealed, and federal tax law would have to be amended to put group car insurance in the tax exempt class with group life and health premiums so that employers and unions would be encouraged to negotiate car insurance as a fringe benefit.

“Chances are that even in the short run there would be some premium savings” from no-fault insurance, says Howard B. Clark, senior insurance analyst for the Department of Transportation and a former insurance regulator in South Carolina. “In the long run those savings will build.” Clark emphasized that no-fault would be a better buy regardless of its effect on premiums because it would reimburse the injured on a rational basis, something the liability system does not do.

The no-fault approach would reduce premiums for some car owners and raise them for others. For example, the premium penalty of $100 or so for having a son of driving age would probably decrease under no-fault. The youth would still be rated a bad accident risk, but you would be insuring against his losses, not those of an unknown person he might hit. Teenagers tend to heal quickly, thus incurring lesser medical expenses; their wage loss, if any, is likely to be fairly small.

The other side of that coin is today’s gold-plated low-risk driver, the middle-aged community pillar with a clean driving record. No-fault wouldn’t change his statistically low chances of having an accident, but should he have one, the medical bills and wage losses might be pretty high.

Progress toward no-fault has been agonizingly slow. Partial no-fault systems improving on the Massachusetts plan have been adopted by Florida, Connecticut and New Jersey. Three other states require motorists to buy injury coverage for themselves but don’t do away with any liability claims.

Most of the inequities in car insurance would have been redressed by the relatively strong federal no-fault bill that the Senate killed on August 8 by referring it back to the Judiciary Committee on a 49 to 46 vote. The bill, sponsored by Senators Philip A. Hart of Michigan and Warren G. Magnuson of Washington, would have given states until mid- 1974 to meet federal no-fault standards or have a federal plan imposed on them.

President Nixon opposes federal legislation, preferring to let the states act on their own. But given the tendency of states to move only halfway when they adopt no-fault, the federal approach appears the best road to real reform. The obstacle at both federal and state levels is the lobbying clout of trial lawyers, to whom the liability system provides about $ 1 billion a year in fees. Most legislators, including 65 of the 100 U.S. Senators, are lawyers and tend to sympathize with other members of their profession. The federal no-fault bill will be offered again next year, however, and the close 1972 Senate vote indicates that public pressure for reform may soon outweigh lobbying pleas.

As former law student Nixon said last summer, no-fault is “an idea whose time has come.”