How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

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Hogan773
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How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by Hogan773 » Wed Jan 17, 2018 12:49 pm

I posted the below at the tail end of an old thread but it got swept away without any views so I will bring it forth here.

I currently have $1000 deduct on both collision and Home insurance. Trying to see how best to analyze my options for the best deductible.

I could technically pay out of pocket to have my whole home rebuilt (wouldn't be happy but could do it) so I am beyond the "only get insurance for something that would financially devastate you." I was thinking I really just need to get a schedule of the various deductible options and look at the savings for each tier, and then look at the implied claim frequency or "payback" right? Making up a ficticious example....if going from $1000 to $2000 saves 100 dollars per year, then ignoring time value of money, I am better off with $2000 as long as I don't have any major claim every 10 years. But if going from $2000 to $3000 only then saves $40, now the implied "payback" for that tier is 25 years. I assume there are sweet spots. Also what do people generally think of an appropriate assumption about when you might have a meaningful claim? I could see the logic of going with a really high deductible ($10K? $15? don't even know if they offer these or higher) but then you are really just saying that your homeowners is only for a) your house burns down or sustains MAJOR damage or 2) you are getting the liability coverage and beyond that you are self insuring even if you have a hailstorm that damages the roof and you need to spend $12K on a new one, etc. But if a higher tier only saves you $20 a year and you are taking on $10,000 in additional exposure layer that would seem to be a "bad bet" no? Because that would imply a breakeven claim frequency of 500 years......

On the car, same logic?

How do Bogleheads analyze this sweet spot?

So here are real world examples from my quote on AUTO:

Comprehensive:
0 deductible = $49.06 (semiannual premium)
500 deductible = $29.68
750 deductible = $25.31
1000 deductible = $22.01
2000 deductible = $19.50

So if my calcs are correct, going to 500 deductible implies a "breakeven incident frequency" of 12.9 years (savings vs 0 deductible, annualized, divided by difference between paying $500 deductible and zero). Going from 500 to 750 implies 29 years. 750 to 1000 is 38 years and 1000 to 2000 is 200 YEARS!

I have similar results on COLLISION with 500 to 750 as 20 years, 750 to 1000 as 31 years, and 1000 to 2000 as 54 years.

So while I am all for minimizing my annual premiums, I'm wrestling with whether it makes sense to step up to higher tiers where I am effectively betting that I wouldn't have a claim in 30, or 50, or 200 (!) years. Am I missing something? It would seem that were I to do that, I am basically saying that if I have ANY claim between now and when I'm in the old folks home, I would have been financially better off to have had a lower deductible.

Pls help me understand how others see it, because I am really challenging my earlier notion that it is always best to go with pretty high deductibles. Maybe I'm missing something.

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by bloom2708 » Wed Jan 17, 2018 2:33 pm

How many $1,500 claims have you filed against your home owner's insurance? I'm picking a number above your $1,000 deductible?

$1,000 seems low for home. How many $1,500 claims can you file before your rates change? Maybe 1 free "grace" claim?

It is unknown (like where the stock market is going) because you don't know how many issues/claims you might have.

Our full coverage car is at $2,500 and our house is at $5,000. I don't know if those are optimal. I'm self-insuring a bit and willing to pay the first $x on bigger claims and willing to eat or not file smaller claims.

We have liability only on 2 cars in the $5 to $7k range in value. If a total loss, we just buy another $5k to $7k car. We have 2 teenage drivers, so adding full coverage is a bit of a shock to the system.

I hope others share their breaking points. I maybe should be $1,000 and $2,500 for auto/home. I second guess and then leave it alone.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by mw1739 » Wed Jan 17, 2018 2:47 pm

We're at $1000 auto and $2500 home. I inquired about bumping the auto up to $1500 or $2000, but the savings was so small it wasn't worth it. I expect to need a new roof in the next 5 years, so I'm selfishly keeping my deductible at $2500 hoping for a good hailstorm. At that point, I'll re-assess $2500 vs. $5000.

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by JBTX » Wed Jan 17, 2018 3:14 pm

Our auto is $1000 and Home is somewhere near $5000 I think. It is something like 1.5 to 2.0% of home value.

I’ve replaced 2 roofs in last 6 hears due to hail and had 2 accidents that weren’t my fault but still had to fork out deductible. The math of higher deductibles hasn’t worked out for me in recent years. I can’t say over lifetime how it has worked out.

I guess I would evaluate how much pain and irritation and regret I would feel by paying deductible vs what I can afford. If I had no collision I would have had to probably pay $7000 for two accidents that weren’t my fault. I can afford that out it would have really ticked me off. As to home, at least with roofs often the insurance reimbursement amount before deductible will end up higher than what contractor will charge you so you may not eat your full deductible.

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by Jack FFR1846 » Wed Jan 17, 2018 3:47 pm

JBTX wrote:
Wed Jan 17, 2018 3:14 pm
If I had no collision I would have had to probably pay $7000 for two accidents that weren’t my fault.
That's only true if it were an unknown person who was at fault. If you're in an accident and get the information, you can make a claim directly with the at fault person's insurance company.

Where you would be out of luck is if the person is unknown or uninsured. Sure, you could go after the uninsured person too but I'd expect that if a person is uninsured, you're not getting anything out of them.

In my state, comprehensive covers glass with no deductible. I keep this on our 04 Outback because a rock could target that thing anytime and there's not much of a choice to fix it when inspection time rolls around.
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Hogan773
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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by Hogan773 » Wed Jan 17, 2018 4:14 pm

bloom2708 wrote:
Wed Jan 17, 2018 2:33 pm
How many $1,500 claims have you filed against your home owner's insurance? I'm picking a number above your $1,000 deductible?

$1,000 seems low for home. How many $1,500 claims can you file before your rates change? Maybe 1 free "grace" claim?

It is unknown (like where the stock market is going) because you don't know how many issues/claims you might have.

Our full coverage car is at $2,500 and our house is at $5,000. I don't know if those are optimal. I'm self-insuring a bit and willing to pay the first $x on bigger claims and willing to eat or not file smaller claims.

We have liability only on 2 cars in the $5 to $7k range in value. If a total loss, we just buy another $5k to $7k car. We have 2 teenage drivers, so adding full coverage is a bit of a shock to the system.

I hope others share their breaking points. I maybe should be $1,000 and $2,500 for auto/home. I second guess and then leave it alone.
I get that you CAN pay the deductible (so can I, at any tier) but are we making GOOD BETS?

If you are at a $2500 deductible vs $1000, and you are saving a whopping $8.00 per YEAR on your premium, then you are betting that you will NEVER EVER EVER have a claim where you need to pay $2500 deductible. Because if you do, and you pay out $2500 instead of $1000, you will NEVER have made up that $1500 through your $8 per year premium savings. Unless you are Yoda and have been paying car insurance for the past 187 years.

I am just rethinking the standard logic of pushing your deductible as high as you can reasonably cover. It seems the insurance companies are getting a much better bet at these higher deductibles. We are voluntarily shouldering much larger layers without really getting paid for it! Seems a bad bet on our part! Again am I missing something? Look forward to others' thoughts on the hard numbers and not just the philosophy of higher is better. I am no longer convinced that higher is always better. If I knew for a fact that I would never have a claim, sure, but in that case I wouldn't have any insurance at all.

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by bloom2708 » Wed Jan 17, 2018 4:33 pm

I'm sure there is some perfect spot. I don't know what it is.

Let's say you have 3 $2,500 claims over 3 years. Does your insurance drop you? What are your rates after 1 and 2 and 3 if they do keep you? Still paying the same rate? If you have those 3 claims over 3 years you likely can't shop insurance. The other company doesn't want you. Or if they do, the cost reflects your risk.

Maybe I'm better off not claiming any of them and just paying the $2,500 (assuming I am at fault and don't involve another driver).

I don't know insurance and the deep dark secrets to get to the exact answer. Will $1,500 break us? Nope.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

Hogan773
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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by Hogan773 » Wed Jan 17, 2018 5:44 pm

bloom2708 wrote:
Wed Jan 17, 2018 4:33 pm
I'm sure there is some perfect spot. I don't know what it is.

Let's say you have 3 $2,500 claims over 3 years. Does your insurance drop you? What are your rates after 1 and 2 and 3 if they do keep you? Still paying the same rate? If you have those 3 claims over 3 years you likely can't shop insurance. The other company doesn't want you. Or if they do, the cost reflects your risk.

Maybe I'm better off not claiming any of them and just paying the $2,500 (assuming I am at fault and don't involve another driver).

I don't know insurance and the deep dark secrets to get to the exact answer. Will $1,500 break us? Nope.
I'm not even going that far. I stopped at comparing the cost of ONE claim in my lifetime vs the savings I am realizing now for a higher deductible. Maybe the likelihood of a comprehensive claim is so small anyway, that is why the pricing difference is small. Maybe there is a chance that I really never file a comprehensive claim on a car, ever. I guess I haven't thus far in life. So better to pocket $8 a year and hope that I never actually file a claim? Comprehensive covers THEFT, fire, vandalism, natural disasters (like a flood), and riots/civil disturbances. So if any of these items ever happened and ruined my $20K car, I would then be paying an extra $1500 out of pocket and in return I am banking $8 a year toward that fund. So even over 40 years I have amassed $320 toward that fund. I guess I am ignoring time value of money to be fair.

The effect is similar on collision, although a bit less extreme. There one might save $20-30 a year going from $1000 to $2000. Great to save that cash but still indicating that if you basically have one claim for the rest of your life, you lost that bet.
Last edited by Hogan773 on Wed Jan 17, 2018 5:50 pm, edited 1 time in total.

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David Jay
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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by David Jay » Wed Jan 17, 2018 5:50 pm

On average, insurance companies are profitable. You are the amateur competing with professional actuaries.

I am heavily biased towards towards self-insure. I carry homeowners and I go to PLPD on vehicles when value drops below about $5000.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by Nate79 » Wed Jan 17, 2018 6:24 pm

The cost savings of raising deductibles as OP shows rarely makes sense in what I have seen.

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by JBTX » Wed Jan 17, 2018 7:17 pm

Jack FFR1846 wrote:
Wed Jan 17, 2018 3:47 pm
JBTX wrote:
Wed Jan 17, 2018 3:14 pm
If I had no collision I would have had to probably pay $7000 for two accidents that weren’t my fault.
That's only true if it were an unknown person who was at fault. If you're in an accident and get the information, you can make a claim directly with the at fault person's insurance company.

Where you would be out of luck is if the person is unknown or uninsured. Sure, you could go after the uninsured person too but I'd expect that if a person is uninsured, you're not getting anything out of them.

In my state, comprehensive covers glass with no deductible. I keep this on our 04 Outback because a rock could target that thing anytime and there's not much of a choice to fix it when inspection time rolls around.
One was an uninsured driver - no license. He hit me from behind at a stop light. (I had dropped uninsured motorist physical damage because it seemed redundant, but the result was I paid a higher deductible). The other was a multi car pileup where I was hit from behind, but the insurance company of the person that hit me would not accept blame because that driver stated he was hit first and pushed into me. In both cases GEICO made very little effort to recover and seemed to be content to pay for my physical damage and let me eat my deductible.

There was a third incident where a shuttle van backed into me at the airport. Luckily I was able to recover from the companies insurance company. I worked directly with the other company. GEICO really didn’t do anything.

My assumption had always been if it isn’t my fault somebody else would pay but I learned the hard way that isn’t always true and the insurance companies don’t really work too hard to recover.
Last edited by JBTX on Wed Jan 17, 2018 7:21 pm, edited 1 time in total.

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by whodidntante » Wed Jan 17, 2018 7:21 pm

In my way of looking at things, I buy insurance for events that would significantly injure me financially. Paying a $2,500 deductible would sting but it wouldn't make any real difference in my life. And I likely wouldn't file a claim unless it was a big event anyway.

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by jhfenton » Wed Jan 17, 2018 7:41 pm

Hogan773 wrote:
Wed Jan 17, 2018 4:14 pm
I get that you CAN pay the deductible (so can I, at any tier) but are we making GOOD BETS?
Nate79 wrote:
Wed Jan 17, 2018 6:24 pm
The cost savings of raising deductibles as OP shows rarely makes sense in what I have seen.
+2 I understand in theory the argument that I've read on here about self-insuring as much as possible, but I've done the same math as the OP, and found that fairly modest deductibles made the most sense.

My agent said that there is a fixed overhead component in each premium that doesn't go down with the actuarially expected payout. At some point with a really large deductible, you're paying a relatively large fixed premium compared to the amount of insurance you're buying. (You see the flip side of that with life insurance policies. Small policies have a high fixed premium component that doesn't scale up with higher death benefits.)

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by Hogan773 » Thu Jan 18, 2018 12:30 am

jhfenton wrote:
Wed Jan 17, 2018 7:41 pm
Hogan773 wrote:
Wed Jan 17, 2018 4:14 pm
I get that you CAN pay the deductible (so can I, at any tier) but are we making GOOD BETS?
Nate79 wrote:
Wed Jan 17, 2018 6:24 pm
The cost savings of raising deductibles as OP shows rarely makes sense in what I have seen.
+2 I understand in theory the argument that I've read on here about self-insuring as much as possible, but I've done the same math as the OP, and found that fairly modest deductibles made the most sense.

My agent said that there is a fixed overhead component in each premium that doesn't go down with the actuarially expected payout. At some point with a really large deductible, you're paying a relatively large fixed premium compared to the amount of insurance you're buying. (You see the flip side of that with life insurance policies. Small policies have a high fixed premium component that doesn't scale up with higher death benefits.)
Interesting. I am still trying to understand why the premium changes (savings) would get so shallow when you are bumping up the deductible to the highest tiers. I would have thought it would go the other way, where the company would charge a lot to those who have low deductibles because a) the insurance company is retaining more of the risk and b) a lower deductible means potentially more frequent claims. For those who are willing to "self insure" much of the risk, I would have thought the insurance company would provide a steeper discount as an incentive to do so.

But I guess even in reading this board we still have a lot of people who just choose the higher deductibles because they intuitively know it will "save money" - they just haven't figured out how much they are really saving.....

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by stlutz » Thu Jan 18, 2018 2:10 am

One thing to keep in mind is that making claims tends to cause your rates to go up. A lower deductible = more claims --> higher rates.

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by Hogan773 » Thu Jan 18, 2018 9:57 am

stlutz wrote:
Thu Jan 18, 2018 2:10 am
One thing to keep in mind is that making claims tends to cause your rates to go up. A lower deductible = more claims --> higher rates.
I know that but again I'm not even looking at it that way. Nothing forces you to make a claim if the potential loss is $1 more than your deductible. I'm just looking at a very bare bones analysis of a single major claim which results in, say, $6000 in damage to repair the car. In that case I would probably file a claim (because if I'm not even going to file at that level, why the heck bother having insurance in the first place?). So then I am either on the hook for $1000 or $2000 in my example. And if I were at the $2000 deductible then I just paid $1000 out of pocket more than I would have if I were at the $1000 deductible. And by taking on that risk, I might be saving $7 or $20 per year in premium (depending on whether it is a comprehensive or collision claim). So basically if I ever have a single claim for the rest of my life, I have likely lost the bet. I mean maybe on the $20 you could do some math that the $20 invested every year will build up to more than $1000 if you use enough years in the calculation and have a high enough investment return so maybe you break even with one claim, but certainly not two claims.

Do any Bogleheads self-insure for collision and comprehensive for a relatively expensive car? I mean if we are going to say that the insurance companies make money and therefore they always "win" the bet, I would guess that many of us could stroke a check for $25,000 if our car got stolen or $12,000 if we had a major accident and decided to repair it. I know people drop collision and comprehensive once values get "low" like $5000 but do wealthier people just self insure the whole value of the car? Just curious

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by scifilover » Thu Jan 18, 2018 10:11 am

At the company I worked for, in non-hail areas we used to see the average HO policy having one loss every 9 years. However, these claims were not distributed evenly. Some people don't have any losses period ever. Others have them more frequently. So, an easy way to help your loss ratio was to eliminate folks with claims frequency issues. Even non-fault auto losses are not distributed evenly. Some people are just unlucky. It isn't good from the company standpoint to insure the unlucky.

Deductibles are complex. The natural tendency for some customers is to pad damages so that a given claim value exceeded their deductible. The costs of materials goes up all the time. Cars and houses have more expensive technology built in. For these and other reasons, a given deductible increase never produces the savings that you think it should. The actuaries have all this figured out. So, unless forced I don't like deductibles larger than $1000. The premium savings just isn't there. Folks in storm areas have to accept that percentage deductible what ever it is. Companies were losing over the long term before they took that step.

Not counting catastrophic fires, we used to have 1 total HO loss per 10,000 policies per year. So the question about buying insurance at all revolves around that bet. Am I willing to bet my $400k equity against a 1 in 10,000 chance of losing it, against the $800 HO premium?

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by Hogan773 » Thu Jan 18, 2018 10:36 am

scifilover wrote:
Thu Jan 18, 2018 10:11 am
At the company I worked for, in non-hail areas we used to see the average HO policy having one loss every 9 years. However, these claims were not distributed evenly. Some people don't have any losses period ever. Others have them more frequently. So, an easy way to help your loss ratio was to eliminate folks with claims frequency issues. Even non-fault auto losses are not distributed evenly. Some people are just unlucky. It isn't good from the company standpoint to insure the unlucky.

Deductibles are complex. The natural tendency for some customers is to pad damages so that a given claim value exceeded their deductible. The costs of materials goes up all the time. Cars and houses have more expensive technology built in. For these and other reasons, a given deductible increase never produces the savings that you think it should. The actuaries have all this figured out. So, unless forced I don't like deductibles larger than $1000. The premium savings just isn't there. Folks in storm areas have to accept that percentage deductible what ever it is. Companies were losing over the long term before they took that step.

Not counting catastrophic fires, we used to have 1 total HO loss per 10,000 policies per year. So the question about buying insurance at all revolves around that bet. Am I willing to bet my $400k equity against a 1 in 10,000 chance of losing it, against the $800 HO premium?
Helpful color. I would bet that very few people self insure on a house, but I wondered if people with 3 year old Honda Accords or Toyota Camrys decide to roll the dice and not pay the $200 per year for collision coverage or $75 for comprehensive.....

So to your point about claim frequency and deductibles, and my original post, would it be reasonable to look at the "payback period" between various deductible/premium tiers and pick something that seems reasonable for potential claim frequency such as 10-15 years for a car and maybe higher for a home (15-25?)

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by TheHouse7 » Thu Jan 18, 2018 10:53 am

David Jay wrote:
Wed Jan 17, 2018 5:50 pm
On average, insurance companies are profitable. You are the amateur competing with professional actuaries.

I am heavily biased towards towards self-insure. I carry homeowners and I go to PLPD on vehicles when value drops below about $5000.
+1
I'm of the perspective that I can't win. The only question I have is how much I will lose. The insurance company is going to gain no matter what happens. I'm interested in saving on premiums until I realize the insurance company isn't doing anything for me anymore.
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by dwickenh » Thu Jan 18, 2018 11:13 am

scifilover wrote:
Thu Jan 18, 2018 10:11 am
At the company I worked for, in non-hail areas we used to see the average HO policy having one loss every 9 years. However, these claims were not distributed evenly. Some people don't have any losses period ever. Others have them more frequently. So, an easy way to help your loss ratio was to eliminate folks with claims frequency issues. Even non-fault auto losses are not distributed evenly. Some people are just unlucky. It isn't good from the company standpoint to insure the unlucky.

Deductibles are complex. The natural tendency for some customers is to pad damages so that a given claim value exceeded their deductible. The costs of materials goes up all the time. Cars and houses have more expensive technology built in. For these and other reasons, a given deductible increase never produces the savings that you think it should. The actuaries have all this figured out. So, unless forced I don't like deductibles larger than $1000. The premium savings just isn't there. Folks in storm areas have to accept that percentage deductible what ever it is. Companies were losing over the long term before they took that step.

Not counting catastrophic fires, we used to have 1 total HO loss per 10,000 policies per year. So the question about buying insurance at all revolves around that bet. Am I willing to bet my $400k equity against a 1 in 10,000 chance of losing it, against the $800 HO premium?
+1 Great way to give perspective to the decision.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by scifilover » Thu Jan 18, 2018 11:26 am

Hogan773 wrote:
Thu Jan 18, 2018 10:36 am
scifilover wrote:
Thu Jan 18, 2018 10:11 am
At the company I worked for, in non-hail areas we used to see the average HO policy having one loss every 9 years. However, these claims were not distributed evenly. Some people don't have any losses period ever. Others have them more frequently. So, an easy way to help your loss ratio was to eliminate folks with claims frequency issues. Even non-fault auto losses are not distributed evenly. Some people are just unlucky. It isn't good from the company standpoint to insure the unlucky.

Deductibles are complex. The natural tendency for some customers is to pad damages so that a given claim value exceeded their deductible. The costs of materials goes up all the time. Cars and houses have more expensive technology built in. For these and other reasons, a given deductible increase never produces the savings that you think it should. The actuaries have all this figured out. So, unless forced I don't like deductibles larger than $1000. The premium savings just isn't there. Folks in storm areas have to accept that percentage deductible what ever it is. Companies were losing over the long term before they took that step.

Not counting catastrophic fires, we used to have 1 total HO loss per 10,000 policies per year. So the question about buying insurance at all revolves around that bet. Am I willing to bet my $400k equity against a 1 in 10,000 chance of losing it, against the $800 HO premium?
Helpful color. I would bet that very few people self insure on a house, but I wondered if people with 3 year old Honda Accords or Toyota Camrys decide to roll the dice and not pay the $200 per year for collision coverage or $75 for comprehensive.....

So to your point about claim frequency and deductibles, and my original post, would it be reasonable to look at the "payback period" between various deductible/premium tiers and pick something that seems reasonable for potential claim frequency such as 10-15 years for a car and maybe higher for a home (15-25?)
As one might expect, claims frequency on cars is greater than on homes. I am a user of lower deductibles on comprehensive....windshield damage from road debris is common, and dropping customers for W/s claims is not legal or accepted practice (generally). On collision, the situation is more complex. Where you live, and how you use your vehicle influences how long cars last and what value they retain. Many people finance for 6 years these days. Both leased and financed cars must be covered for collision. I think when car value gets down into the 4 digit range its time to think hard about collision.

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Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by Hogan773 » Thu Jan 18, 2018 12:12 pm

scifilover wrote:
Thu Jan 18, 2018 11:26 am
Hogan773 wrote:
Thu Jan 18, 2018 10:36 am
scifilover wrote:
Thu Jan 18, 2018 10:11 am
At the company I worked for, in non-hail areas we used to see the average HO policy having one loss every 9 years. However, these claims were not distributed evenly. Some people don't have any losses period ever. Others have them more frequently. So, an easy way to help your loss ratio was to eliminate folks with claims frequency issues. Even non-fault auto losses are not distributed evenly. Some people are just unlucky. It isn't good from the company standpoint to insure the unlucky.

Deductibles are complex. The natural tendency for some customers is to pad damages so that a given claim value exceeded their deductible. The costs of materials goes up all the time. Cars and houses have more expensive technology built in. For these and other reasons, a given deductible increase never produces the savings that you think it should. The actuaries have all this figured out. So, unless forced I don't like deductibles larger than $1000. The premium savings just isn't there. Folks in storm areas have to accept that percentage deductible what ever it is. Companies were losing over the long term before they took that step.

Not counting catastrophic fires, we used to have 1 total HO loss per 10,000 policies per year. So the question about buying insurance at all revolves around that bet. Am I willing to bet my $400k equity against a 1 in 10,000 chance of losing it, against the $800 HO premium?
Helpful color. I would bet that very few people self insure on a house, but I wondered if people with 3 year old Honda Accords or Toyota Camrys decide to roll the dice and not pay the $200 per year for collision coverage or $75 for comprehensive.....

So to your point about claim frequency and deductibles, and my original post, would it be reasonable to look at the "payback period" between various deductible/premium tiers and pick something that seems reasonable for potential claim frequency such as 10-15 years for a car and maybe higher for a home (15-25?)
As one might expect, claims frequency on cars is greater than on homes. I am a user of lower deductibles on comprehensive....windshield damage from road debris is common, and dropping customers for W/s claims is not legal or accepted practice (generally). On collision, the situation is more complex. Where you live, and how you use your vehicle influences how long cars last and what value they retain. Many people finance for 6 years these days. Both leased and financed cars must be covered for collision. I think when car value gets down into the 4 digit range its time to think hard about collision.
That was my conclusion too re: comprehensive a few years back. I was at 250 deduct with State Farm. I had a chip in one car and had to pay $65 out of pocket to fix, and then three months later my other car got a huge crack across the windshield (due to my stupidity in running the defroster hard with a layer of ice across the whole windshield) and I found surprisingly that I could get the whole windshield replaced with good glass for $250 installed. I had assumed it would be more like $750. So paid that out of pocket too of course. Then I asked for the sensitivity on premium and found that going to zero deductible was only an extra 12 bucks a year or something, which would imply that if I think I might have a single glass incident in 20 years, it would be worth it (especially if they can't raise rates for glass claims). And that also opens me up to getting the free chip repairs too. Given that windshields are getting thinner I thought it was a good bet to take.

scifilover
Posts: 225
Joined: Sun Apr 14, 2013 12:56 pm

Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by scifilover » Thu Jan 18, 2018 12:25 pm

Hogan773 wrote:
Thu Jan 18, 2018 12:12 pm
scifilover wrote:
Thu Jan 18, 2018 11:26 am
Hogan773 wrote:
Thu Jan 18, 2018 10:36 am
scifilover wrote:
Thu Jan 18, 2018 10:11 am
At the company I worked for, in non-hail areas we used to see the average HO policy having one loss every 9 years. However, these claims were not distributed evenly. Some people don't have any losses period ever. Others have them more frequently. So, an easy way to help your loss ratio was to eliminate folks with claims frequency issues. Even non-fault auto losses are not distributed evenly. Some people are just unlucky. It isn't good from the company standpoint to insure the unlucky.

Deductibles are complex. The natural tendency for some customers is to pad damages so that a given claim value exceeded their deductible. The costs of materials goes up all the time. Cars and houses have more expensive technology built in. For these and other reasons, a given deductible increase never produces the savings that you think it should. The actuaries have all this figured out. So, unless forced I don't like deductibles larger than $1000. The premium savings just isn't there. Folks in storm areas have to accept that percentage deductible what ever it is. Companies were losing over the long term before they took that step.

Not counting catastrophic fires, we used to have 1 total HO loss per 10,000 policies per year. So the question about buying insurance at all revolves around that bet. Am I willing to bet my $400k equity against a 1 in 10,000 chance of losing it, against the $800 HO premium?
Helpful color. I would bet that very few people self insure on a house, but I wondered if people with 3 year old Honda Accords or Toyota Camrys decide to roll the dice and not pay the $200 per year for collision coverage or $75 for comprehensive.....

So to your point about claim frequency and deductibles, and my original post, would it be reasonable to look at the "payback period" between various deductible/premium tiers and pick something that seems reasonable for potential claim frequency such as 10-15 years for a car and maybe higher for a home (15-25?)
As one might expect, claims frequency on cars is greater than on homes. I am a user of lower deductibles on comprehensive....windshield damage from road debris is common, and dropping customers for W/s claims is not legal or accepted practice (generally). On collision, the situation is more complex. Where you live, and how you use your vehicle influences how long cars last and what value they retain. Many people finance for 6 years these days. Both leased and financed cars must be covered for collision. I think when car value gets down into the 4 digit range its time to think hard about collision.
That was my conclusion too re: comprehensive a few years back. I was at 250 deduct with State Farm. I had a chip in one car and had to pay $65 out of pocket to fix, and then three months later my other car got a huge crack across the windshield (due to my stupidity in running the defroster hard with a layer of ice across the whole windshield) and I found surprisingly that I could get the whole windshield replaced with good glass for $250 installed. I had assumed it would be more like $750. So paid that out of pocket too of course. Then I asked for the sensitivity on premium and found that going to zero deductible was only an extra 12 bucks a year or something, which would imply that if I think I might have a single glass incident in 20 years, it would be worth it (especially if they can't raise rates for glass claims). And that also opens me up to getting the free chip repairs too. Given that windshields are getting thinner I thought it was a good bet to take.
I think so too. However, I have heard some horror stories about W/S replacements involving having to do complicated alignment to get the Lane Departure Warning etc camera/sensors working correctly with the new glass. If true, the companies will see a significant increase in comprehensive severity (average size of loss) which will drive rates up and possibly reduce deductible options. I guess the glass refracts the light coming through.

Hogan773
Posts: 343
Joined: Thu May 07, 2015 11:14 am

Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by Hogan773 » Thu Jan 18, 2018 1:24 pm

scifilover wrote:
Thu Jan 18, 2018 12:25 pm
Hogan773 wrote:
Thu Jan 18, 2018 12:12 pm
scifilover wrote:
Thu Jan 18, 2018 11:26 am
Hogan773 wrote:
Thu Jan 18, 2018 10:36 am
scifilover wrote:
Thu Jan 18, 2018 10:11 am
At the company I worked for, in non-hail areas we used to see the average HO policy having one loss every 9 years. However, these claims were not distributed evenly. Some people don't have any losses period ever. Others have them more frequently. So, an easy way to help your loss ratio was to eliminate folks with claims frequency issues. Even non-fault auto losses are not distributed evenly. Some people are just unlucky. It isn't good from the company standpoint to insure the unlucky.

Deductibles are complex. The natural tendency for some customers is to pad damages so that a given claim value exceeded their deductible. The costs of materials goes up all the time. Cars and houses have more expensive technology built in. For these and other reasons, a given deductible increase never produces the savings that you think it should. The actuaries have all this figured out. So, unless forced I don't like deductibles larger than $1000. The premium savings just isn't there. Folks in storm areas have to accept that percentage deductible what ever it is. Companies were losing over the long term before they took that step.

Not counting catastrophic fires, we used to have 1 total HO loss per 10,000 policies per year. So the question about buying insurance at all revolves around that bet. Am I willing to bet my $400k equity against a 1 in 10,000 chance of losing it, against the $800 HO premium?
Helpful color. I would bet that very few people self insure on a house, but I wondered if people with 3 year old Honda Accords or Toyota Camrys decide to roll the dice and not pay the $200 per year for collision coverage or $75 for comprehensive.....

So to your point about claim frequency and deductibles, and my original post, would it be reasonable to look at the "payback period" between various deductible/premium tiers and pick something that seems reasonable for potential claim frequency such as 10-15 years for a car and maybe higher for a home (15-25?)
As one might expect, claims frequency on cars is greater than on homes. I am a user of lower deductibles on comprehensive....windshield damage from road debris is common, and dropping customers for W/s claims is not legal or accepted practice (generally). On collision, the situation is more complex. Where you live, and how you use your vehicle influences how long cars last and what value they retain. Many people finance for 6 years these days. Both leased and financed cars must be covered for collision. I think when car value gets down into the 4 digit range its time to think hard about collision.
That was my conclusion too re: comprehensive a few years back. I was at 250 deduct with State Farm. I had a chip in one car and had to pay $65 out of pocket to fix, and then three months later my other car got a huge crack across the windshield (due to my stupidity in running the defroster hard with a layer of ice across the whole windshield) and I found surprisingly that I could get the whole windshield replaced with good glass for $250 installed. I had assumed it would be more like $750. So paid that out of pocket too of course. Then I asked for the sensitivity on premium and found that going to zero deductible was only an extra 12 bucks a year or something, which would imply that if I think I might have a single glass incident in 20 years, it would be worth it (especially if they can't raise rates for glass claims). And that also opens me up to getting the free chip repairs too. Given that windshields are getting thinner I thought it was a good bet to take.
I think so too. However, I have heard some horror stories about W/S replacements involving having to do complicated alignment to get the Lane Departure Warning etc camera/sensors working correctly with the new glass. If true, the companies will see a significant increase in comprehensive severity (average size of loss) which will drive rates up and possibly reduce deductible options. I guess the glass refracts the light coming through.
I was able to get my installer to source an aftermarket windshield that had the little cutout and shading and bracket already there which made the reattachment of the camera easy for him. While it wasn't "Honda" glass it was identical design and was branded Pilkington which I know is an OEM manufacturer. Getting the "Honda" stamp on the glass would have cost $400 more or some ridiculous number.

Charlesmetz83
Posts: 18
Joined: Fri Nov 10, 2017 12:37 am

Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by Charlesmetz83 » Thu Jan 18, 2018 1:50 pm

Jack FFR1846 wrote:
Wed Jan 17, 2018 3:47 pm
JBTX wrote:
Wed Jan 17, 2018 3:14 pm
If I had no collision I would have had to probably pay $7000 for two accidents that weren’t my fault.
That's only true if it were an unknown person who was at fault. If you're in an accident and get the information, you can make a claim directly with the at fault person's insurance company.

Where you would be out of luck is if the person is unknown or uninsured. Sure, you could go after the uninsured person too but I'd expect that if a person is uninsured, you're not getting anything out of them.

In my state, comprehensive covers glass with no deductible. I keep this on our 04 Outback because a rock could target that thing anytime and there's not much of a choice to fix it when inspection time rolls around.
This all depends on which state you live in. Somes states have No Fault insurance laws. Doesnt matter if you know who his you or caused the accident if you are in a state that has No Fault laws for insurance as you can only claim with your own insurance.

scifilover
Posts: 225
Joined: Sun Apr 14, 2013 12:56 pm

Re: How to Analyze Sweet Spot on Insurance Deductibles - Challenging my Preconceived Notions

Post by scifilover » Thu Jan 18, 2018 7:21 pm

In this thread we have been discussing physical damage to autos covered by comprehensive, and collision. No-fault applies generally to automobile bodily injury losses. So, it isn't relative to this particular discussion.

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