THE COST OF YOUR INSURANCE

By Alan Plafker, PRESIDENT & CEO
Member Brokerage Service LLC
A Melrose Credit Union Service Organization

All insurance companies that write auto policies (including Taxi, Black Cars, & Limos) must be approved to do business by the NY State Insurance Department. They must provide complete disclosures showing financial security and ability to pay claims.This means that they must charge rates sufficient enough to pay anticipated claims and related expenses.

In addition, The NY State Insurance Department must approve the rates they charge, and will not allow them to over price policies, or more importantly, to under price policies as this can lead to Insurance Company insolvency or departure from the market which is bad for the public. For instance, many companies like Empire, Eagle, Frontier, and Highlands are examples of Companies that provided insurance in the "For Hire" industry but are no longer available.

WORLDWIDE AND GLOBAL FACTORS AFFECT INSURANCE RATES

Most Insurance Companies "Reinsure" the risk, which means they buy insurance from other Insurance Companies who usually reinsure companies worldwide. Doing this strengthens their financial ability and gives them the capacity to write more policies. It also influences pricing on the policies we purchase because these reinsurance companies also review the rates and must approve them before they will insure the Insurance Company.

The Insurance Companies need the reinsurance to be able to have the financial capacity and ability to write large numbers of policies at the lowest possible rates. Without reinsurance, there would be limited availability because there would be limited capacity. Insurance Companies have limited available financial strength without reinsurance backing.

Now, the result of this is that the rates we pay for insurance is greatly influenced by reinsurance companies that insure many different risks worldwide. They all share the risk to increase capacity. As such, any global factor causing claims worldwide can affect our rates. This situation also minimizes competition among insurance companies which leads to less available Insurance Companies to insure risks. Most of the Insurance Companies go to the same few available Reinsurance sources for backing.

Many drivers think that Insurance companies take advantage and charge high prices to the For Hire industry. Although this can happen, the major influence in the basic rates is from the factors described above. These factors are worldwide.

Insurance Companies have had many recent disasters that expose them to claims such as: Terrorism (9/11 World Trade Center and others) and Natural Disasters (Hurricanes, Wildfires, Winter Storms, etc.). Other exposures such as plane crashes & bombings, liability from asbestos exposure, workplace and construction related injuries and other liability lawsuits all affect our rates. Our rates can also be affected by poor performance in the stock market producing investment losses for Insurance Companies.

FRAUD AND LEGAL FACTORS AFFECTING RATES

In New York, there has been a rise in the rates used for "No Fault" coverage because of widespread fraud in recent years. This coverage known as "PIP" (personal injury protection) is mandatory and TLC requires minimum limits of $200,000.

Insurance companies are mandated to work with law enforcement to investigate and reduce fraud. Many professionals such as lawyers, doctors and medical centers have been caught in conspiracies to defraud Insurance Companies. The NY Legislature has also been working on improving laws to discourage and prosecute fraudulent claims.

INDIVIDUAL RISK FACTORS

After the basic rates are influenced by all the factors previously mentioned, the individual risk is considered. A driver with no accidents or tickets and a new car would get a better rate than one with a poor driving record and/or an older car.

Another factor hsed to evaluate the individual policy is for the insurance company to get proper and honest information about driver disclosure. Companies give the best rates to Owner/Drivers working a single shift. The problem is that companies have been lied to so many times during the past several years, and underwriters are suspicious.

Policyholders with multiple drivers want to pay a lower single shift rate and mislead the Insurance Company. Companies have so many claims on undisclosed drivers that it drives up all the rates and is unfair to the honest single shift owner/driver.

CONCLUSION

All these factors are keeping insurance prices up while the insurance companies are not seeing enough profit in the For Hire industry. This situation makes it unattractive to encourage new insurance companies to come in and compete, resulting in fewer insurance companies in our market.

One thing we must do now ito fight fraud in claims and disclosure. Then we can hope that the worldwide insurance industry and our economy improve attracting more insurance companies to promote competition.

Alan Plafker is President of Member Brokerage Service LLC, a Melrose Credit Union Service Organization. He is a licensed Insurance Broker and serves on the Board of Directors the PIANY (Professional Insurance Agents Association of NY) and on the Board of CIBGNY (Council of Insurance Brokers of Greater NY). His Agency insures thousands of polices for TLC Insurance as well as many policies for all types of insurance. You can reach him in his Briarwood, Queens office at (718) 523-1300 ext. 1082.

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