2012 Consumer Guide to Automobile Insurance
When Applying for Auto Insurance
One of the most relevant classifications in auto insurance ratemaking is age because of its obvious relation to losses. Consistently, young drivers are disproportionately represented in auto accidents in relation to their percentage of the total driver population. If licensed less than three years at the start of the policy period, the principal operator of a vehicle, regardless of age, will receive an inexperienced operator surcharge.
Drivers who are 25 years of age and over can generally obtain insurance at a considerably lower cost than younger drivers. Please be aware that most insurers will consider any member of your household with a learner's permit to be an insured operator of the vehicle for purposes of rating your policy, as this represents an increased exposure.
There are a varying number of different age classifications, within which premiums generally tend to decrease as a person matures. However, some insurers' statistics indicate that, beyond a certain age, driving skills deteriorate. This causes the claims experience of senior citizens as a group to worsen, causing various insurers to charge higher premiums for those higher-age categories. On the other hand, many senior citizens may benefit from those insurers that vary their prices by the number of miles a car is driven each year, since they may drive less than the average insured.
Your driving record is crucial in determining your premium and your insurability. Most companies charge substantially more to insure drivers with a history of traffic violation convictions or chargeable accidents than those who have relatively clean records.
Many insurers will not insure a driver whose recent driving record is poor, even if that driver's record was clean in the past. The reasons for an insurer's refusal to accept a risk varies with each company, and a risk declined by one insurance company may be found acceptable by another.
Basic premiums are calculated according to the loss experience of the group classification to which you belong. A driver's record of accidents or traffic convictions is also considered in determining the final premium. To further classify policyholders, auto insurance companies apply merit rating plans, which modify the premiums being charged according to an individual's driving record. The resulting merit rating surcharge is used to properly price the exposure the insurer is writing, and not as a means to recoup payments previously made under a claim.
Under many insurers' rating plans, your first at-fault accident could result in a surcharge of up to 40% of your premium, and you could also lose a safe driver discount had you previously qualified for it. Most insurers use a "point" system to assign surcharges for chargeable accidents and traffic violation convictions to your policy. Although both are based on your driving record, this insurance point system is separate and distinct from points against your driving license maintained by the New York State Department of Motor Vehicles (DMV).
Premium surcharges due to accidents or convictions are governed by the Insurance Law and regulations, which allow surcharges to be applied during the experience period (typically three years) for specified incidents, some of which are:
- accidents involving bodily injury or death, or losses to property in excess of $1,000 ($2,000 for policies effective on and after November 27, 2010), where the insured driver is at fault; or
for certain violations, including the following illustrations:
- speeding more than 15 MPH over the legal limit;
- driving while intoxicated or impaired by alcohol or drugs;
- operating a vehicle while attempting to avoid apprehension by a law enforcement officer;
- leaving the scene of an accident without reporting it;
- operating a vehicle in a race or speed test;
- driving without a license or knowingly permitting an unlicensed person to drive your vehicle; or
- filing a false insurance claim.
However, surcharges are specifically not permitted if, for example:
- your vehicle was struck in the rear, without a moving violation conviction against you;
- your vehicle was struck while it was legally parked;
- you as the insured or your insurer is reimbursed or obtains a judgment of 1/3 or more (on a property damage or physical damage claim)
- the driver of your car was not at fault (on a bodily injury claim or No-Fault claim) or was struck by a hit-and-run vehicle;
- the total damage caused by the accident is less than $1,000 ($2,000 for policies effective on and after November 27, 2010) and there were no injuries (however, having 2 or more accidents under $1,000 ($2,000 for policies effective on and after November 27, 2010) is usually subject to a surcharge);
- you have a single minor moving violation of the Vehicle & Traffic Law other than those specifically set forth in the Insurance Law (some of which are listed above);
- the accident occurred while the insured was driving an employer’s vehicle in the course of business (this also includes police officers, firefighters and peace officers while on duty in their official vehicles, or while driving any vehicle in an emergency situation); or
- claims are made under comprehensive or towing coverages.
In general, no policy can be surcharged to a level where the premium exceeds more than three times the base premium for the highest rated vehicle covered by that policy (without the surcharge). Please note that surcharges only apply to the premiums for liability, No-Fault, and collision coverages.
Your insurer must notify you of the exact dollar amount of any surcharges (and discounts) being applied to your policy as well as the dates of any accidents or convictions on which those surcharges are based. This information must be on, or attached to, your policy declarations page, which contains key identifying information about you and your policy. The insurer must also include information with your policy regarding circumstances under which surcharges must be refunded. Among these are:
- when it is subsequently established that the accident for which a surcharge was applied falls under one of the exceptions enumerated in the insurer’s merit plan;
- if the conviction for a chargeable violation or traffic infraction is ultimately reversed;
- if a surcharge was levied through mistake, misinformation or other error; or
- the insurer has established a claim file, but no claim was submitted for a period of three years after the date of the incident or the statute of limitations has run and no suit has been filed.
Over the past several years, insurers have also used consumer credit information, along with other information to decide whether to issue you a private passenger auto policy and how to price it.
Under New York law, insurers that use credit information must adhere to the following consumer safeguards:
- If an insurer uses credit information in rating or underwriting a policy, they must send you a notice disclosing this fact, including the name of the credit reporting agency.
- If your premium is higher than it would be if you had a “better” credit score, you will receive a notice advising you of this fact. The notice will include an explanation of credit-related factors that affected your score.
- If there is an error in your credit report, you should contact the credit reporting agency to correct the report, and then inform your insurer or agent of the correction, as it may affect your premium and entitle you to a refund.
- Your insurer must review your current credit information at least once every 3 years, upon your request, unless it reviews updated credit information more frequently (e.g. annually) as part of their renewal process. When the company reviews the updated credit information, if your credit information has improved, you may be entitled to a lower premium, and the company must make any necessary adjustments at such time.
- Your company may not terminate your policy or increase your renewal premium based on credit information.
It is important to ask any questions you have as well as disclose all relevant information requested on an application even if it results in a higher premium. You may question the agent, broker or insurer about its practice with respect to non-renewal of policyholders and the insurer's surcharge policy. When obtaining a policy, ask the insurer about its guidelines on non-renewals and their relationship to any collision or comprehensive claims you may submit. It might make sense to choose a higher deductible, which would reduce the number of claims made, since only amounts over the deductible would result in a collision or comprehensive claim under your policy. It should be noted that all auto accidents, regardless of the amount of damage, must be reported to your insurer as required by your policy provisions. Please be aware that many insurers consider your credit history in the underwriting process, with regard to accepting or rejecting your application, or in the determination of your rating tier (if the insurer has a "multi-tier" rating structure (see Chapter V)). However, the Insurance Law prohibits an insurance company from rejecting your application solely on the basis of credit information. See Paragraph 3 of Subchapter E below for more information on uses of credit information.
B. Termination Period (see also Chapter XII)
may cancel a new policy (not a renewal policy) for any reason not contrary to
New York Insurance Law by mailing a notice within the first 60 days. This termination
period for cancellations permits insurers the time and opportunity to verify any
underwriting information on a brand-new risk, in order to confirm that it wants
to insure you. If your policy covers you for physical damage (comprehensive or
collision) the insurer must inspect and photograph your vehicle to use for comparison
purposes if future damages are claimed. This inspection is usually waived in the
case of a brand new vehicle. Failure to comply with mandatory inspection requirements
will result in a suspension of physical damage coverage for the period of time
that the vehicle remains uninspected. There is no cost to you for this inspection.
In addition, an insurer is entitled to cancel any policy mid-term if it discovers any fraud or material misstatement made in the application for the policy. Discovery of fraud in making a claim may also subject any person involved to criminal prosecution and/or a civil penalty under the Insurance Law of up to $5,000, plus the value of the fraudulent claim (see Chapter XV - "What About Fraud?").
Consumers should also be aware that there are computerized informational systems used by insurers, such as the Comprehensive Loss Underwriting Exchange (CLUE). This system, similar to a credit reporting agency, gathers data from insurers regarding past and present policyholders' claim histories. When an insurer writes or rates a policy, it may request a CLUE report on you. If you discover that information in a CLUE report has been used against you, you may obtain a copy of your report by contacting CLUE at the ChoicePoint Consumer Center (Tel: 1-800-456-6004). There will be no charge for this report if your request is made within six months of its use by the insurer.
Pursuant to the Insurance Law, an insurer is not permitted to reject an application for auto insurance based solely on the geographical location of the risk or of the producer. However, an insurer may decline an application based on sound underwriting and actuarial principles reasonably related to actual or anticipated loss experience. There are some insurers that only write in specified regions of the state as specialty or regional insurers. This marketing strategy does not necessarily constitute an illegal practice. However, if an insurer has "carved out" certain sections within larger areas in which they will not write business, this might warrant further investigation and you are urged to bring this to the attention of the Department.
Law also forbids an insurance company from refusing to issue a policy or terminating
a policy because of the race, creed, color, national origin, disability, sex,
marital status or advanced age of an insured or applicant. Such refusal or termination
would constitute illegal discrimination.
An insurer may not reject an applicant who possesses a New York driver's license for auto insurance solely on the basis that the applicant has not owned or insured a vehicle during the prior 39 months. (However an applicant who was on active service in the US Armed Forces and has maintained a continuous, valid out-of-state or out-of-country license for the prior 39 months will be treated as if continuously licensed in New York.)
E. Factors Impacting Your Auto Insurance Premium
Auto insurance premiums vary widely because
they depend in part upon the characteristics of the person insured, shown by statistical
analysis and historical experience to be reliable predictors of future accidents.
In New York, risks are grouped for rating purposes by classifications to assure
that risks with similar characteristics such as age, sex, marital status, territories,
annual mileage, vehicle use - pleasure/work (also see Chapter X) and driving experience
receive comparable pricing treatment. In this way, the risk of incurring losses
is spread among many policyholders who have similar characteristics. There would
be widespread unfair discrimination, which New York State law prohibits, in the
absence of such a sound classification system.
You should notify your insurer of any changes while the policy is in force, such as a change of your address or the addition or deletion of a vehicle or driver. An insurer, by law, must revise your premium if it discovers certain information (e.g., that your vehicle is used for purposes other than those listed on your application, other persons operating your vehicle, or surchargeable accidents or convictions) that affect the rating exposures and/or characteristics.