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Self insure my car

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Most car rental agreements apply an insurance excess, which is the amount you are responsible to pay towards repair costs if the rental vehicle suffers any damage. Excess Reimbursement is designed to repay you the amount of any excess or repair costs you have to pay under the terms of the rental agreements following damage to the rental vehicle.
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Car Hire Excess Insurance
Covers excess for damage & theft on the rental vehicle up to £4,000
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Valid for any car rental company at any location*
Start the policy up to 364 days in advance, to coincide with your trip
Includes rental car key cover up to £500
Includes cover in the event of misfueling
* Excluding any trip in, to, or through Afghanistan, Belarus, Cuba, Congo, Iran, Iraq, Ivory Coast, Liberia, North Korea, Myanmar, Sudan and Zimbabwe
+ All countries to the west of the Ural Mountains including the United Kingdom, Republic of Ireland, Iceland, islands in the Mediterranean, Morocco, Tunisia, Turkey, Canary Islands, Madeira, and the Azores

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Geico car insurance claims complaints

Illustration by Lo Cole

A version of this article appeared in the Spring 2017 issue of strategy+business.

If you are an executive of an auto insurance company, pay attention — you may not have a business in 20 years. You can blame the fundamental shifts in auto safety and data mining that connected car and autonomous vehicle technologies will bring. Robot drivers will outnumber humans behind the wheel. The remaining human drivers will be safer, thanks to collision-preventing sensors and analytics on board. Insurance claims will be rare, losses will be reduced, premiums will decline, and insurance companies will probably lose control of the data that makes their pricing models possible. Car owners might no longer purchase insurance directly. Instead, automakers would bundle insurance into each new car purchase, much as they do satellite radio and roadside service contracts today.

These types of structural business model changes don’t happen often, especially in a regulated sector like auto insurance. And although the shift isn’t imminent, it is practically inevitable. Already, driverless cars have moved from low-speed and test environments to limited use on public roads and highways. Safety and production issues need to be addressed before widespread adoption can occur, but the auto industry and the businesses that support it are pushing hard for change.

Global auto insurance is a US$700 billion market (pdf) that represents 42 percent of global aggregate property and casualty insurance, according to Swiss Re. It is an extremely competitive market today, and it will be still more competitive by 2030. Research conducted by our DeNovo strategy consulting platform suggests that auto insurance companies will find themselves squeezed out of conventional auto insurance altogether. They would then have to find new sources of revenue: expanding into non-automotive fields such as commercial liability and cybersecurity coverage or, perhaps, partnering with car manufacturers and ride-sharing services.

If you’re in this sector, you may feel that you have a long time to prepare. Data from the Insurance Institute for Highway Safety suggests that mass-market (95 percent) adoption of vehicle safety features takes approximately 30 years. Such features are typically introduced in luxury vehicles and then, as costs fall, expand across the entire fleet. But insurers do not usually wait for full adoption before adjusting rates. Front airbags, for example, were introduced in 1984, have been mandatory on all new U.S. passenger vehicles since 1998, and only in 2016 were they installed in 95 percent of the national fleet. Yet auto insurance premium reductions of 25 to 40 percent for cars with airbags were phased in long ago. The addition of airbags now saves roughly 2,500 lives per year in the U.S., according to the National Highway Traffic Safety Administration (NHTSA), and this has directly influenced actuarial assumptions.

Insurance will likely be bundled into new car purchases, like satellite radio and roadside service contracts.

The overall safety improvements ushered in by self-driving technology will similarly affect insurance risk models before fully autonomous vehicles reach the mainstream. Safety is expected to improve rapidly. The first accident initiated by a Google autonomous car occurred after 1.45 million vehicle miles traveled (VMT) (pdf), which is approximately 0.7 accidents per million VMT. This is significantly lower than the current U.S. average of about 2.0 accidents per million VMT. Given that human error is responsible for more than 90 percent of all accidents in the U.S., insurers will be pressured to shave premiums.

How rapidly will autonomous vehicles advance? Much depends on regulation. Current regulations are friendlier to autonomous vehicles than one might expect, given how many technical challenges are still to be solved. For example, the recently announced U.S. driverless vehicle policy does not contain specific regulations but rather guidance for safety measures and for how these vehicles can conform to local and federal traffic rules. The intention of this policy’s flexibility is to avoid the lengthy process usually associated with developing standards for new auto technologies. The fact that autonomous vehicles may bring transportation to millions of disabled Americans also may spur regulatory approval. Further, regulators are aware that in the small number of incidents involving autonomous vehicles to date, human error was to blame most of the time.

Another major factor in the development of self-driving vehicles is price. According to a 2014 IHS Markit report, the incremental cost to the consumer of autonomous driving technology will be $7,000 to $10,000 per vehicle in 2025. This suggests that autonomous vehicles could command a luxury premium for the foreseeable future.

But mainstream manufacturers are working steadily toward incorporating this technology into mass-market autos. General Motors (GM) may prove to be the front-runner; it began testing its autonomous Chevy Bolt in August 2016. Ford has stated its intention to deliver fully autonomous vehicles in high volume by 2021. Toyota has invested $1 billion in a new research institute to develop a self-driving concept car. Projected to appear in 2020, it will assist drivers rather than replacing them. With all the research and development activity under way, we expect the first autonomous vehicle insurance policies to be written by 2019.

Reinventing Auto Insurance

If even a small number of autonomous vehicles replace those driven by humans, the revenue from insurance premiums will decline, and the sector’s business models will lose ground. Auto insurers could face structural changes in their underwriting and risk modeling, as well as revisions to the underlying components of policies.

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The greatest risk for insurers is losing control over the data on which they depend to price risk effectively. Data including statistics on speed, distance between vehicles, response to weather conditions, brake pressure, and driver distractions will be gathered by software embedded in the car that is proprietary to the manufacturer. Automakers will aggregate that data from a vast fleet of connected vehicles. They will thus be in a better position than insurers to understand and price risk. This shift creates the potential for a battle over data ownership.

Will automakers sell cars and insurance as a package deal? It’s possible. They have developed new revenue streams before. For example, the General Motors Acceptance Corporation, now known as Ally Financial, was founded in 1919 to give GM’s dealers access to financing.

To expand into insurance, vehicle manufacturers would need to obtain necessary state licenses by acquiring insurance companies or seeking these licenses themselves. Some autonomous vehicle manufacturers are showing signs of interest in this path. For instance, Tesla has introduced InsureMyTesla, a service in Hong Kong and Australia that works with AXA General Insurance and QBE Insurance, respectively, to offer insurance policies tailored to its customers. Tesla will not conduct the underwriting or retain the risk, but the automaker will learn the claims and customer service aspects of the insurance process.

Meanwhile, the growing prevalence of software controls will change the dynamics of auto repair after crashes. Insurers will need to rethink how they value the replacement costs for damaged vehicles. Software has high development costs, but low-to-negligible costs for distribution (for example, through software updates). This gives manufacturers an inherent advantage in valuing the replacement cost, and a more compelling rationale to enter the insurance market, because low replacement and distribution costs increase the likelihood that bundling insurance will be profitable.

The Insurers’ Response

The many unknowns will affect the way the insurance business evolves. For example, autonomous technology is already ahead of consumer acceptance. Many people are not yet mentally prepared to embrace these cars in every aspect of everyday life: for example, as a way for young children to travel unaccompanied by an adult. Further, the practice of evaluating autonomous vehicle safety is still in its infancy. Even if statistics demonstrate that autonomous driving is safe, it is not clear how the industry or regulators will assign fault in the collisions that do occur.

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Consider, for example, the widely reported May 2016 fatality in which a self-driven Tesla car hit a truck that was making a left turn. There was a human driver in the car, who apparently had put the car in autopilot mode. The NHTSA announced in January that it would require no recall. It did not attribute the accident to defects in the car, but it implied that future autonomous vehicles might be limited to roadways designed for them. The decision could have broad implications for how autonomous vehicles are insured and how insurers design personal auto policies. New policies may explicitly exclude certain autonomous driving activities and may require an additional rider or add-on provision.

Typical personal auto policies do not specify which features the insured chooses to purchase or use while driving. In the future, insurers will not necessarily be aware of the various autonomous driving features on individual vehicle models or how they can be activated. Thus, either policies will need to evolve to match broad groups of features or there will need to be an unprecedented degree of fine-grained cooperation between insurers and manufacturers.

Autonomous vehicles’ reliance on software may open the way for multitiered insurance products. For example, insurers could offer a hybrid product combining commercial liability with specific cybersecurity protection and personal auto insurance.

Cyber risk is a real concern for autonomous vehicles, and will need to be priced into insurance policies. In 2015, Chrysler voluntarily recalled 1.4 million vehicles because of a software flaw that could allow the vehicles to be remotely accessed. In September 2016, Tesla updated its software in response to a breach that permitted remote access to and control of functions, including turn signals and the braking system.

U.S. government security and safety agencies have sounded the alarm, too. The FBI, the Department of Transportation, and the NHTSA issued a joint public service announcement in March 2016 warning that driverless vehicles are increasingly at risk for unauthorized remote access intended to obtain driver data or manipulate vehicle functionality.

Nonetheless, the die is cast in favor of autonomous vehicle technology. Production of 12.4 million connected cars is forecast in 2016, and annual growth of 49 percent is expected through 2020, according to the Gartner Group. The business models of both automakers and insurance companies, therefore, will need to adjust, and adjust quickly.

For insurers, the winners will be those that move early to respond to the drop in revenues from traditional auto premiums and that identify new opportunities (such as coverage of cybersecurity in cars) where risk is not yet well understood and where new forms of insurance will be in demand.

Reprint No. 17104

Author Profiles:

  • Chris Martin is the insurance industry specialist for DeNovo, a next-generation strategy consulting platform focused on fintech innovation.
  • Aaron Schwartz is the head of research for DeNovo. He is a director with PwC US.
  • Haskell Garfinkel is the co-leader of PwC’s fintech practice and a founder of DeNovo. He is a partner with PwC US.
  • DeNovo is published by PwC under Strategy&, the strategy consulting business at PwC. For more information, see strategyand.pwc.com/denovo.


The Bad News

It all started with an innocuous looking envelope in the mail from our homeowner’s insurance company. They were writing to let us know that when our policy would be renewed (in several months) the coverage would change as they would no longer be covering:

“any structure enclosed by screens on more than one side, constructed to be open to the weather, and not covered by the same or substantially the same materials as that of the primary dwelling.”

I had a hunch this wasn’t good news, so I called our insurance agent to confirm. The basics of it were this. Any structures on our property that aren’t under the roof of the house would no longer be covered under our policy. For our house, that meant our in-ground pool and the screened pool enclosure would no longer be covered.

Driving car without insurance uk

Screened Pool Enclosure aka Pool Cage aka Lanai aka Kitty PoP Hunting Grounds – Lovely to keep the skeeters away

If you’re not familiar with “screened pool enclosures” (also called pool cages or lanais), they are basically giant screened cages that go around the pool to keep bugs out (and for us, to keep Kitty PoP in). They are made of lightweight aluminum framing and their walls are basically just the equivalent of window screening. They are notorious for becoming projectiles in hurricanes, and (sadly) can be expensive to repair, not to mention they can do a decent amount of damage to the pool deck if the aluminum frame collapses inward.

The Worse News

It seems like everyone we know has a horror story about a friend whose pool cage sustained tens of thousands of dollars worth of damage in a big hurricane. So when we got the news about our insurance coverage change, I told our insurance agent to start looking for new quotes from other companies or see if it would be possible to get a separate policy to cover the pool and the screened enclosure.

Our agent searched and searched, and we even had agents representing other companies see what types of coverage they could offer. Here was the scenario we were facing.

  1. A separate policy for the pool and enclosure wasn’t an option. The value would be too small for a company like Lloyds of London to want to write it.
  2. Very few companies were even willing to write a new policy on our house due to its age (built in 1985), construction (wood frame), and distance to “open water” (about 0.75 miles). The best policy from a company that would include coverage of the pool and cage would cost $4,300/yr – with a slightly higher deductible than our current policy, to boot.
  3. Our current policy was actually getting a little more expensive, too, even with the drop in coverage. Coverage for everything except the pool and lanai with our current company would be $2,300.

But there was a catch on the policy that was willing to insure the pool and cage. Turns out the coverage on the pool and cage would drop whenever there was a tropical storm or hurricane warning or watch. Most of the year, it would be fully covered with a $1,000 deductible, but anytime our house was in the cone of uncertainty* of a tropical system, the deductible would rise to $3,500, and the coverage on the pool and cage would max out at $10K. (This is the kind of stuff where it pays to have an insurance agent you trust and who knows their stuff. How many people have these kind of loopholes in their policies and don’t even know it?)

Bpv car insurance

Cone of Uncertainty vs Cone of Shame

So What’s the Bottom Line?

A $2K difference in yearly premiums, for what amounts to $10K worth of coverage in the times we’re most at risk. So, we figure the break even point here is:

$10K / $2K/yr = 5 yrs.

Do we think there will be catastrophic damage to the pool and its cage at least once every 5 years? Honestly, no we don’t. The pool and cage have been here for 15 years now, and there have been plenty of hurricanes and tropical storms that have come through the area without doing any significant damage to the structure. Now, we’re not fooling ourselves into thinking it’s invincible – we’re just simply noting that every tropical storm does not damage or destroy every pool cage in its path.

Game Plan If Something Happens

Even though the coverage we’re turning down would have only been worth $10K, it’s entirely plausible that a storm could between damage to the cage and pool, require $30K worth of repairs. What’s the plan then?

Until that point, we plan on putting $2K aside each year as part of our self-insurance fund. Even if it doesn’t cover all the damages, it’ll sure give us a nice head start.

Also, our coverage extends to the roof line of our house, so we could repair any damage up to that point immediately, and for a few hundred bucks more, remove the pool cage and close off the screened enclosure at the roof line as a temporary measure. Kitty PoP wouldn’t have quite as big an area to play in, and the pool would be open to mosquitos, but it’d be temporary. Then once we figure out how much the remaining repairs are, we would have to decide if we wanted to wait and save up the money to make them, or (if the HELOC is paid down completely at that point), put the repairs on that and pay it down after.

In the meantime, Mr. PoP is reinforcing some of the screened enclosure’s structure – replacing screws that have started to rust and stuff like that. We figure that we’re now going to be taking on 100% of the risk there, it doesn’t hurt to hedge our bets a little right now.

Have you ever decided to self insure part of your health or home? What was your game plan for the worst case scenario?


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