Common insurance misconceptions

Misconception or complaint:

Reality: What is covered and what is not covered is all detailed in your policy, which is a contract between you and your insurance company. If there is some question as to whether something is covered or not, insurance companies usually err in favour of the claimant.
Insurance is always intended to protect you against sudden and accidental events. Certain damage or losses that are predictable are almost never covered. For example, if you live on a flood plain, where flooding happens every few years, you are unlikely to be covered if your basement suffers water damage from water that got in from outside the house.

If you read your policy, you’ll see two things that can limit your coverage. Exclusions are events that are never covered under your policy. Policy limits are dollar limits that can apply to the entire policy, or to certain types of claims. If you read your policy carefully, it should be clear what is covered and what isn’t.

Misconception or complaint:

Reality: Your insurance company should estimate the fair value of your vehicle by researching similar vehicles for sale online. If you disagree with their number, you can challenge it.

Fair value for a car that isn’t brand new is not always easy to ascertain. One way to estimate is the bluebook value, but nowadays, probably the easiest way is to go online and find 3 or 4 vehicles that are listed for sale and that are comparable to yours in terms of make, model, features and condition. Take an average, and then take 5-10% off, because everyone knows that list prices are almost never the final price.
If you disagree with your insurer on the value of your car, you can challenge the decision with the company’s ombudsman. If you still disagree after that, the province has an independent ombudsman, but they won’t review your case unless you’ve already tried the company’s ombudsman and/or complaints process first.

Misconception or complaint:

Reality: A lot of insurance companies now offer coverage for a rental vehicle while your own vehicle is being repaired after an accident. This is an optional coverage, and there is always a time and/or dollar limit to how much the insurer will cover.

It’s a common complaint during complicated claims that the rental car coverage runs out before the policyholder gets their own car back from the shop. This can be frustrating, but any limits are always stated clearly in the policy.

Misconception or complaint:

Reality: Processing times for auto insurance claims are fairly standard. Most delays with auto insurance claims are related to issues with the shop that’s doing the repairs. In fact, it’s usually in the insurance company’s interest to get the claim resolved faster because they often pay for a rental car while your car is in the shop. They also want the work done right so they don’t have to pay to get it done again.

For an auto insurance claim, the insurance company might take a day or two to gather information, a day to inspect the vehicle and a day to approve repairs. Then 5 minutes to write a cheque to a repair shop and another 5 minutes to write a cheque to a car rental company. Maximum 4 days total. If your car is a total loss (write-off), it might take a week to decide on a fair settlement and write a cheque. If there is some question as to whether it is a total loss or not, or if your vehicle is a rare model, that can lead to longer delays.

Delays from the customer perspective are usually related to how busy the shop is (how many cars are ahead of yours?), whether the parts needed for your repair are in stock? On back order? Need to be shipped from Germany? Also, there are sometimes delays once the work starts, because when the repair shop starts doing the work, they could uncover additional damage or additional parts that are needed. None of this has anything to do with the insurance company.

Misconception or complaint:

Reality: Insurance companies need customers to make money. They won’t cancel you for no reason. If your insurance company cancels you, it’s because you no longer meet what they call their underwriting criteria, which means you’re not the kind of customer they want.

Every insurance company is looking for certain kinds of customers, and they may cancel you if you no longer fit that mold. A few reasons why you might be cancelled: 1) Any company will cancel you if you don’t pay your premiums, or if you lie on your application; 2) Some companies will cancel you if have more than a few tickets or at-fault accidents; 3) Other companies that prefer higher-risk customers might actually cancel you because your driving record is too good. In this case, getting cancelled could save you money. If you get cancelled for misrepresentation (lying) or non-payment, it will cost you more in the long run.

Misconception or complaint:

Reality: When you no longer fit an insurer’s underwriting criteria – meaning the kind of customers they want – they may cancel you, but another insurer will probably want your business. It may be more expensive, but not always.

Every insurance company specializes in a particular kind of customer/home/vehicle/business. Some companies want drivers over 50. Some want century homes. Some want anything but. If you’re with an insurance company that doesn’t want any cars older than 20 years old and your car turns 20, it makes sense that they won’t want to insure you anymore, even if you’ve been a good customer for 10 years. It’s not personal. If you traded that car in for a newer model, your insurer would likely be happy to continue the relationship.

In this sense, insurance is unlike anything else you buy. Because the insurance company is taking on risk related to you and your belongings, they reserve the right to control their level of risk by using these underwriting criteria that are based on past claims.

Misconception or complaint:

Reality: Insurance companies don’t cancel customers as some kind of punishment for making a claim. They cancel you because you no longer meet their underwriting criteria – meaning the kind of customers they want.

Every insurance company has criteria they use to determine whether they want to insure someone or not. This can include the age of your house, the kind of wiring, or dozens of other factors. Years of claims data have proven that these factors increase the chances of you making future claims. Similarly, most home insurance companies would have criteria related to claims. Perhaps they don’t want any customers who make more than two claims in a five-year period. Not because of the claims themselves, but because the past claims statistically increase the risk of future claims.

Misconception or complaint:

Reality: Loyalty does not apply to insurance in the way that it applies to most other businesses.

If you sell hats, you probably feel a certain loyalty to your customers. If a customer has bought 10 hats from you, you may give them a great deal on their 11th hat. Even if you make zero profit on the 11th hat, there’s no big risk.

Insurance companies can’t afford to be loyal in the same way, because if they are loyal to a customer that is at high risk of having a big claim, that could cost the company ten times as much as all the premiums the customer has ever paid or will ever pay. Insurers have underwriting criteria that they use to determine when a customer is too high risk. That could mean they won’t accept you as a new customer, or that they will cancel or non-renew you after 20 years. It really has nothing to do with loyalty.

But this cuts both ways too. As a customer, especially with auto insurance, where every company is selling the same product, you may be somewhat loyal to your current insurance company if they’ve provided good service, but for most people who haven’t made claims, you typically will go with the best price. To that end, perhaps your loyalty should be to your broker, who hopefully offers you awesome service like Mitch, and ideally has access to a lot of different insurers, so if your insurer cancels you or increases your premium, they can find you attractive alternatives.

Misconception or complaint:

Reality: It 100% matters if you’re at-fault or not in a car accident. Ontario’s auto insurance system is called a no-fault system because your insurance company always pays for your losses.

The other type of auto insurance system is called a tort system, where the insurance company for the at-fault driver would pay for the losses of everyone involved in an accident.

As for whether fault matters, in Ontario, your insurance company is not allowed to charge you more for a non at-fault accident. If you are at-fault, however, they can use that to increase your premium, or in some cases cancel your policy.

Misconception or complaint:

Reality: In Ontario, the decision of who was at-fault for an accident is governed by detailed fault determination rules made by the provincial government, and available publicly.

Whenever there is an auto insurance claim, the claims adjuster will look at all of the information that is available, and assign 100% fault to one driver, or partial fault to multiple drivers, all according to the fault determination rules. If you are in a single-vehicle accident, you are automatically 100% at-fault.

In cases where the police came to the scene, or where all the drivers went to a collision reporting centre, it’s easier to determine fault. If the other driver reported the accident but you did not, it’s very possible that they could tell a version of the story where you were at fault. If you don’t present your side of the story, the adjuster will probably accept the other driver’s story as fact. So, if you know the accident wasn’t your fault, it’s worth your while to make sure to document everything you can at the scene, ask for witnesses’ contact information etc.

If you discover that you were found at-fault for an accident and you want to dispute it, you can do so by contacting your insurance company’s ombudsman. If you are not satisfied with their final decision, you can ask the provincial ombudsman to review the case for you.

Misconception or complaint:

Reality: The fact is that insurance can’t be 100% fair. If everyone’s premium was directly related to the cost of their own at-fault accidents, then drivers who have never crashed would pay nothing, and drivers responsible for an accident that cost $100,000 or $1 million would never be able to get insurance again, or would pay thousands of dollars a month. That’s not insurance. That’s everyone paying for their own losses.

The way that insurers try to make premiums as fair as possible is to rate drivers based on how many consecutive claims-free years they’ve had. One at-fault accident resets your rating from a 3 star or 6 star rating to a zero star rating, and could double or triple what you pay. It doesn’t matter if the accident cost the insurer nothing or if it cost them $1 million. It’s not perfect, but it’s the only way to make sure everyone has insurance and premiums are able to cover claims costs. When your claim is minor, it seems unfair, but when you have an $8,000 claim, your premium probably won’t go up by $8,000 either.

Misconception or complaint:

Reality: Insurance is a cyclical business. There are certain times of year when call and email volumes spike, and no broker or insurance company will be able to increase staffing levels quickly enough to keep up.

Unlike retail, where stores can hire seasonal staff leading up to Christmas when they are busier, the people who help you with your insurance needs are highly trained professionals, licensed by the province based on their knowledge and expertise. When the insurance industry has periods of higher call volumes, there will always be long waits on the phone, and there will always be a lag of several days or more when you leave a message. It’s not that the broker doesn’t care. They are helping someone else.