Business Plan Blog

If you listen to the commentators, they all sing the same song. We’ve now entered the internet age. This is supposed to convince us something new and wonderful has happened. It’s such a complete break with the past it heralds the beginning of a new information age in which, somehow, we can all get ahead and do things never possible before. This is, of course, pure rubbish. The only difference between the digital age and the hard-copy age that went before it is the ease of access. Having a PC or some other online device gives you access to a vast library with a search engine to help you find the pages you need more easily. But, when you have the right page on the screen in front of you, it’s the same words you could have found in a book or some other written material. All that’s changed is the way the words are presented to you.

So, if you go back in time, printed words have always been used to manipulate people. They sell ideas to you. This means real power lies in the power to control access the means of publication. If a group can control what gets printed and distributed, the words can always tell the same story. But if the means of publication is open to other voices, this can give a completely different view of the world. This is why reputations can be made or unmade depending on who has the power to publish.

The problem for modern companies is anyone today can start up a blog or website. Many internet services are free to use. Similarly, the networking sites like Facebook allow people to write their opinions and describe their experiences. In the past, we would never get to hear Anne from Denver bought a steam cleaner that sprayed boiling water over her hands. Now she can write it and thousands of people can tweet it. It makes it very difficult for manufacturers and service providers to protect their reputations. This explains, in part, why insurance companies very rarely allow interaction on their sites. Since they cannot control what sometimes angry customers may say, they try to deny them a voice. Except there are now some very high profile sites on which people can complain about bad products and services. This movement is not yet sufficient to damage the vast insurance industry, but individual companies are finding it more difficult to prevent their reputations from slowly washing away.

This makes the recent announcement of a new online forum all the more encouraging. The intention is to allow people from both sides of the insurance relationship a chance to ask questions and have their say. Instead of a blank screen on which insurers give you the news they think you should hear, you can now ask about how to get more affordable car insurance rates, what to do if a claims adjuster low-balls the fair market value offer, and so on. This does not mean everyone on the forum will be an “innocent” consumer. There will inevitably be anonymous industry experts giving balancing views and opinions. But this is a hopeful sign of change. You may even get cheap car insurance quotes because of pressure through forums like this.

Everyone accepts the basic principle of capitalism that, if a company is run on a for-profit basis, it’s entitled to run a business model that maximizes revenue and minimizes costs. After all, it’s only fair that whoever puts up the money to start a business should be entitled to a return on their investment. But there comes a point when we should ask how much profit is morally acceptable and whether there should be limits on the means a business can use to make that profit. In the movie Wall Street, Gordon Gekko answers the first by saying there’s no such thing as “enough”. All that happens in business is money gets transferred from the losers to the winner. Later he says greed is good. Looking around at the amount of bonuses paid to the bankers and senior officers of our largest corporations, it seems they’ve learned Gordon Gekko’s lessons well.

As an example, let’s take the insurance industry. For a few years, it offers cover against all the standard perils from wind and rain. That way, if a storm hits your home, you can claim regardless whether the wind huffs and puffs it down or floods wash it away. Except, the insurers noticed there were more floods coming along, so they stopped insuring. The result? The Federal government had to set up the National Flood Insurance Program to take on the risks the private corporations rejected. Then along came a series of hurricanes that did real damage through the combination of wind and water. People living near the coast discovered to their cost that insurers were excluding so-called storm surges. That’s where the wind whips up the water and drives it inland.

These days, insurers are very careful to define exactly what wind and water damage they cover. If there’s even the slightest doubt your damage falls within the scope of their definitions, your claim will be rejected and your only remedy will be to sue. As an example of the attitude shown by some insurers, let’s travel to Mississippi where the local Supreme Court is dealing with a case in which the same insurance company paid out for wind damage to the houses on both sides of the claimant, but refused a cent to the house in the middle. The problem follows from Hurricane Camille when this particular insurer lost a lot of money. So it inserted a new term in the policy which says that if water gets involved, all wind damage is excluded even if the wind contributed to the damage. The result is rather dramatic. Suppose your home is 95% destroyed by wind and then there’s a small flood that completes the destruction, the insurance company would deny all liability.

In a for-profit business model, there’s no general requirement for the home insurance company to be fair to the customer. If the clause is clearly set out in the policy and the customer accepts the policy, this is the customer’s choice and the insurer will deny liability. So, the next time you get those home insurance quotes, make a point of reading through the policies to see what exceptions and exclusions the insurers have written into the policies. If you live in an area where wind and water may combine, you could find your claims denied.

No matter what you think of scientists, there seem to be changes in the weather. There’ve been more violent hurricanes and storms, some devastating tornados, and more flooding than anyone might have expected. Looking around the world, there’s massive flooding across large parts of Asia and don’t forget the earthquakes. First New Zealand and then Japan got hit, followed by a tsunami. When you put it all together, it’s enough to make you think no amount of insurance is ever enough. Guess what? Because you think that, the insurance industry has been bringing out an all-singing-all-dancing package of different policies. If you can think of a way of losing money, the insurance industry has a policy to sell you. The only question is how much insurance should you buy?

This is about paranoia. When you add in the recession, there’s a perfect storm with everything going wrong in the world. The marketers trade on this so, when you see a company offering to sell cover against the value of your home falling, you’re tempted. You see the homes being repossessed around you. Perhaps your own mortgage is underwater. What’s not to like about policy that pays out if your home loses yet more value? Then there’s the company selling insurance against you losing your job. In theory, it pays out your take-home pay if you suddenly pick up a pink ticket. This looks good because, even though you can’t pay off the mortgage, you can at least make the monthly payments. At least, you think you can until you read all the small print and find out just how difficult it is to make a successful claim. Yes, it’s natural to want to protect your family and keep a roof over their heads, but this is not the right time to panic.

Let’s start with the standard policy for the home. You’re insuring the cost of repairing or, if the damage is too extensive, completely rebuilding. To that, add the value of the contents. Depending on the policy, this is the amount necessary to replace like-with-like rather than new-for-old. All this should be reviewed when renewing because the cost of labor and materials keeps on rising even though the resale value of the home may be dropping like a stone. Remember you’re not insuring the land. You’re just replacing what was lost, assuming that’s possible. If your home was to drop into a sinkhole or the plot disappeared in a landslide, rebuilding might be impossible. In that case, you pick up an agreed cash sum.

So, when you’re planning how much insurance to buy, focus on the standard policies and make sure you have everything set up properly so that, if the worst happens, you can make a claim and have it paid. Home insurance cover is not rocket science. Whether it’s good value depends on what the insurer has excluded. Read the policy and do your “homework”. If your research says this is a good deal, go for it. Although it may make you feel more comfortable if you spend your money on some of these more exotic policies, nothing is likely to offer the same value as a traditional home insurance policy.

Michigan’s system of insurance for motor vehicles has been either praised or decried for years, depending on how you feel about government involvement in insurance. While always among the highest average premiums in the country, Michigan also has the best-protected drivers of any state. Now, however, it looks set to change, as new legislation comes up for debate in Lansing’s legislative bodies.

Cars, Insurance, and Natural Disasters

Will there be a new system? If so, what will it be like?

The Current Law: Benefits and Problems

Currently, the state of Michigan is the only state in the US to require all drivers buy unlimited medical and rehabilitation benefit coverage if they want to drive legally. This means that, if someone is injured in a crash, the insurance company covers all of their medical needs up to a point, from where the state assumes responsibility.

The upside of this has been very few lawsuits compared to other states, as well as the obvious benefit that is people having their injuries covered. It also still means that, if you want unlimited injury protection, Michigan is the cheapest place to get it.

The downside is that everybody, no matter their financial background, has had to buy high-priced insurance. It is true that not everybody can afford to buy coverage like this in Michigan, the state with the worst unemployment in the nation, which may be causing more uninsured illegal driving, rather than driving with a smaller level of coverage.

This has also been very expensive for the state. In order to make premium prices drop and allow everyone to afford the great coverage, Michigan set up the Michigan Catastrophic Claims Association (MCCA), which reimburses fees that insured drivers receive after $500,000 of coverage through their insurer is surpassed. With nearly 13 thousand Michiganders on the books, the MCCA tab is simply too much for the state.

Possible Changes to Michigan’s Auto Coverage Mandates

State Republicans are the ones largely backing the proposed changes. They argue that the system is simply too expensive for the state. Eventually, they say, Michigan won’t be able to afford the bills and balance the budget � which its constitution requires it to do each year.

The changes would end the unlimited coverage mandates and allow people to get policies with a lower level of mandated coverage. The coverage levels being discussed are minimums of $50,000 to $200,000, government insiders believe.

The MCCA is also likely to stay open, but will not take on any future claims. Currently it operates with a $2.4 billion deficit, so it cannot really even afford to pay for everyone it does. To fix this, all motorists would be required to contribute a “pre-vehicle special assessment”, which amounts to a yearly fee. This year it would cost drivers $29.

The insurance industry and Republicans are in agreement on the changes to car insurance mandates. A cynic would say the industry stands to make more money with the changes, but they say it is about consumers having a right to choose.

Legislation would also end the choice of an unlimited policy, capping auto insurance coverage at $5 million.

Healthcare workers, economists, and trial lawyers all stand against this car insurance proposal. They argue it would increase healthcare costs, make unemployment worse, and hurt consumers.

Insurance agencies use many factors to determine your rates. Credit, driving record, and age range help to estimate your potential risk as a client. But with today’s technology, companies can get an actual sample of your driving via electronic data-tracking devices, ultimately saving you money for responsible driving.

With the development of on-board computers in automobiles, every car now has a sort of “black box” that can record driving information and, with the right equipment, transfer information like top speeds and mileage. Several programs now exist in various parts of the United States, and they get you big discounts on your monthly premiums.

Device Tracking Programs

Allstate’s Drive Wise

This program offers discounts based on information collected from a device that you plug into your car’s onboard computer-available in all cars made since 1996. It measures mileage, hard braking, acceleration rates, time of day driven, and speed (when you exceed 80mph). This information is then automatically transmitted to Allstate. You can even check your performance online.

You receive a 10% discount just for signing up and up to 30% after your first policy period. The program cost is $10 per policy period.

Availability: Arizona, Illinois, Ohio

Progressive’s Snapshot

Similar to Allstate’s Drive Wise program, signing up for Snapshot transfers data to the insurance company for discounts measuring most of the same information.

You earn an initial discount after one month, and you send the device you installed back after 6 months. You are then eligible for another, permanent discount up to 30%. There is no cost to enroll and the data can’t hurt your rates.

Availability: 37 states

OnStar Programs

OnStar is a subsidiary of General Motors which allows subscribers a number of special features in their car, such as GPS navigation, emergency contact, vehicle diagnostics, hands-free calling, and other features. It is installed on all GM vehicles; new vehicles receive a free one-year subscription, and used vehicles receive a free 3-month subscription. This program has been integrated into two different mileage-based insurance programs.

GMAC’s Low-Mileage Discount

All GMAC customers who have a subscription to OnStar can enroll in this program, which is based entirely on mileage, for free.

Drive fewer than 15,000 miles per year and you will get a discount of at least 13% and up to 54% if you drive fewer than 2,500 miles per year.

Availability: 35 states

State Farm’s Drive Safe and Save

Also utilizing the OnStar system, Drive Safe and Save tracks your mileage and gives you up to 44% savings on your car insurance premiums. The driving is constantly updated though, so your discount will change every policy period based on your latest driving statistics.

Availability: California, Colorado, Illinois, Ohio, Texas

MileMeter

This Texas car insurance company offers insurance by the mile. Prices start at 2.5 cents per mile. No need any fancy electronic equipment for mileage tracking-all you have to do is send the company a picture of your odometer when you sign up and each time you renew your policy.

Availability: Texas only

Pre-1996 And Non-GM vehicles

Pre-1996 vehicles cannot be retrofitted with the OBD II diagnostic device. However, non-GM vehicles can be fitted with a custom rear-view mirror equipped with OnStar.