Why Might Not At-Fault Claims Impact My Premium?

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During the winter holidays, most of us spent time surrounded by family and friends.  I spent Thanksgiving in Midland, MI at my grandparents’ house.  My 87 year-old grandpa, God bless him, backed into my wife’s Jeep that was parked in their driveway.  In a voice that was indistinguishably on the brink of laughing or crying, my grandpa told my wife Paige that he’ll be getting her a new bumper for Christmas.  Paige, yet again proving she’s more forgiving than I am, calmly told my grandpa not to worry about it.  “We shouldn’t have parked there” she explained to him.  Regardless of the fact that in this specific scenario my wife’s Jeep would be repaired by my grandpa’s insurance company (click here to read Brian Boer’s article about no-fault insurance), this occurrence is just one example of why not-at-fault claims may have an impact on your premium.

As mentioned above, where you park has a significant impact on your likelihood of submitting a not-at-fault claim.  For example, the new car “that guy” parked in the very last row at Meijer is much less likely to get hit than the car parked between a beat-up truck and a rust bucket sedan.  Additionally, someone who parks in their garage rather than on the street certainly has reduced their chance of being hit by another driver.  Lastly, we’ve all probably had at least one scare while looking for a spot in a parking ramp downtown Grand Rapids.  Someone who parks there every day for work is more likely to get hit than someone who parks in a small surface lot in Greenville.  Regularly avoiding certain parking spots results in a much lower likelihood of being hit.

Another reason not-at-fault claims may have a premium impact is to better price for your specific driving characteristics and the routes you’re most likely to drive.  Someone who brakes late and hard is more likely to be rear-ended (which is usually deemed not-at-fault) than someone who gradually brakes to a stop.  Additionally, someone who tries to sneak by a car that’s beginning to back out of a parking spot is more likely to be backed into (which, again, is usually deemed not-at-fault) than someone who patiently waits for them to pull out.  We all probably know someone who reminds us that they’ve never been in an accident.  Is it just dumb luck or is that person more attentive and cautious than the average driver?  Most likely it’s the latter.  

In regard to routes driven, insurance companies certainly rate based on zip codes but don’t have the ability yet to rate for a driver’s most common route within that zip code (even if they did, there are some serious privacy issues with this).  For example, someone who courageously navigates the Fuller/Lake Drive intersection on a regular basis is at a higher risk of getting in an accident than someone who spends most of their time driving the residential streets of East Grand Rapids.  For this reason, a not-at-fault accident is deemed a reasonable indicator of how hazardous an insured’s normal driving route is.

Lastly, rating for not-at-fault claims moderates the cost of insurance for society as a whole.  Most people are hesitant to submit an at-fault claim for less than $2,000 of damage, and for good reason.  First, the claim settlement would be subject to their deductible (usually $500 or $1,000) and second, they will have an at-fault accident on their driving record.  If not-at-fault claims had no impact on insurance rates, people would submit claims for amounts as little as $10.  The “unseen” costs of settling a $2,000 claim and a $200 claim are nearly identical.  The claim representative must communicate with the client and the agent, review and approve the repairs, coordinate with the body shop, etc. regardless of the size of the claim.  Therefore, rating for not-at-fault claims discourages people from submitting claims that are better paid out of pocket.

These risks (where you park, how and where you drive, and your inclination to submit small claims) are nearly impossible to rate for using “pre-accident” criteria such as an MVR, age of driver, credit score, etc.  Therefore, insurance companies use not-at-fault accidents to more accurately price the probability of paying a claim on the policy.  

This article was written by Derek Boer.  Email questions or comments to Derek at derek.boer@boerinsurance.com