When you get a car, you need to have auto insurance. It is important to get coverage that is comprehensive, but also inexpensive. While most people care a great deal about getting a good price when they first set out to get car insurance, they often fail to continue searching thereafter. Not continually looking for good deals can cost you hundreds each year.
Many people are unaware that the cost of your auto insurance can be lowered to help you save, depending on your driving record, your car, and where you are.
Increase Your Deductible
If you insurance the amount you pay for a deductible, it will reduce the cost of insurance fees. Now understand that this move is certainly one way to save on the costs month to month, but if you end up in a car accident, then yes it can end up costing you more to fix the damages.
However, if you have a history of being a safe driver, try it out and set some money aside for an emergency fund to cover unexpected car costs.
Try Carpooling
There are some insurance companies which actually track mileage, so the less you drive, the cheaper your coverage. With these policy types, if you drive less than 7,500 miles you get the lowest rate, and anything up to 13,000 is the medium rate.
Change Plans to What You Need
It is better for you to change plans to what you need, when you need them. Buying a brand new car is going to require different insurance compared to an older car. When you are paying off your car loan you will need collision and comprehensive coverage, but once it is paid off you have many more insurance options at your disposal.
You might end up with more collision insurance than you need. In fact, on older cars it is recommended that you drop collision insurance anyway because comprehensive coverage is comparable inexpensive and will give you all the coverage you need.
Combine Policies
If you have car insurance and renters/homeowners insurance through different companies, you might be able to combine your policy with one company and stack discounts.
Check for Discounts
If you have changed jobs, moved somewhere new, or anything else, keep track of your policy options. You might be able to get a cheaper policy in a new town or with a new job.
Check Your Credit
Your credit score has a small role to play in what your insurance costs are. So pay your bills on time and make sure you work hard to improve your credit score. As you are doing so, continually check to see if you now qualify for lower rates.
Other Discounts
As a student, good grades can earn you discounts. As an adult, see if you can take an adult driver safety program from better discounts. Consider avoiding a red colored car, as these come with higher insurance rates for users compared to other colors.
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Announced today in partnership with Barclays and Visa at the Money2020 conference in Las Vegas, the new card gives Uber yet another point of access to incredibly valuable customer information and marks another front in its campaign to assume a larger role in online and offline commerce.
Not content with just having a record of some of the comings and goings of the at least 10 million people that use the company’s ride-hailing service every day, Uber will now get a record of some of those folks’ daily purchases through the new card.
Applying for the card is easy. Starting November 2, Uber will give users the option to get the card right in its app, and will populate all of the information they have on file for their customers into the application.
Folks also can apply for the card online.
After a few minutes, an applicant can get a verdict on their creditworthiness and then… Presto! The card is automatically available for use for Uber rides and UberEats purchases and a physical card will show up in the mail within a week or so.
The no-fee card offers a bonus of $100 after spending $500 on purchases within the first 90 days, and has other perks, like 4 percent back on restaurants, take-out and bar purchases; 3 percent back on airfare, hotels and Airbnb or other short-stay rentals; 2 percent back on online purchases; and 1 percent back on everything else.
The new card also gives users a $50 credit for online subscriptions (after spending $5,000 on the card per-year), phone insurance of up to $600 if someone uses the card to pay their monthly phone bill; and exclusive invites to events for card members.
To unpack that a bit, in exchange for fronting the cash and getting information about the $5,000+ worth of stuff you’ve bought, Uber will hook you up with $50. And the company’s card will also insure your phone once it has information on your carrier and what you’re spending money on through that carrier.
That’s an almost Amazonian level of information Uber could get about its customers. But, David Richter told me the company would not be selling to third parties any of the data it collects.
Folks can also track and redeem points for Uber credits, cash back and gift cards.
The app’s integration within Uber looks beautiful, and it’s a clever way to capture all that valuable data… If you’ve already given up on the notion that data is any way private or not a commodity, then the card is probably not a bad bet… the perks seem good.
For a comparison of how the perks stack up, here’s a list of NerdWallet’s top rewards credit cards.
It’s just… Uber has had issues with privacy in the past, and that might be something that should give consumers pause. For one, Uber built out a God-mode to let employees check the comings and goings of users with little to no restrictions or transparency. The company also built a feature that tracked user locations once they’d left a vehicle.
The card will come with annual percentage rates of 15.99 percent, 21.74 percent and 24.74 percent based on an applicant’s credit worthiness… and there’s no upper limit on credit lines, according to a Barclays spokeswoman.
This push into payments comes as the battle for customized shopping experiences for consumers heats up. Amazon already has so much data about what its customers are doing that it can offer a compelling argument to be the main (potentially only) retail outlet for a consumer.
Where Amazon runs into limitations is in the physical world with actual restaurants and other grocery stores. With its new credit card, Uber could make a compelling proposition for companies that want to find a way to offset the Amazonian monolith. By getting all that payment information, Uber can begin pairing with merchants to offer customized offerings, paid off with an Uber card.
Also worth mentioning is that this push into credit is the opposite path that Uber’s big emerging markets rivals have taken with their own payment features. Southeast Asian ride-hailing platform Grab bought Kudo earlier this year as a way to get its customers access to basic digital financial services, and Ola built out a standalone app for the same reason. It’s a different path, but same goal to be more relevant and “top of mind” for users.
In the U.S. this gambit is a new front in the war for customer loyalty and dollars. Your move, big e-commerce giants.
Independent commission to study how to tax Metro Vancouver roads with mobility pricing
VANCOUVER (NEWS 1130) – How much you pay to get around, be it by car, bike, or bus, could change.
The Mobility Pricing Independent Commission is releasing a report Wednesday about lower mainland traffic congestion and pricing.
Mobility pricing looks at everything from road maintenance, transit fares, parking fees, and gas prices.
Transportation expert Gordon Price with Simon Fraser University’s Centre for Dialogue says the province cutting tolls on the Port Mann and Golden Ears Bridges has limited their options to charge for transportation.
“The entire transportation system is going to be affected by how we measure what people are doing and charge them something appropriate to that.”
He says drivers and transit users can argue over what’s fair between tolls or fare hikes, but he points to Oregon as a state that has charged alternatives to a gas tax.
“So they do have ways of people voluntarily measuring GPS systems in their cars, charged for that kind of use,” he says.” There are only a handful of cities that have done this. There’s Singapore, Stockholm, London.”
Is road pricing the fairest way to go?
“No one knows what that is, but you can count on one thing, if I’m being charged more, it’s not fair,” he laughs. “That’s pretty much a truism in politics, but the Commission can certainly give parameters, discuss it certainly, and look at what other jurisdictions have done.”
Ride-hailing has also been on municipal minds and it adds a new wrinkle to mobility pricing.
“Imagine something like Uber combining with Amazon came to the city and said they’d like to buy the transit system, the whole thing, they’d maintain it, you can regulate it, but we want it, also the road system that you would pose tolling on, we’d like that included. Throwing Uber, bike sharing, taxis, parking, anything that you can imagine, we’d like to sell it as a service package to practically everyone in Vancouver. Like shared telecommunications package, every month you pay someone for a communications service, Shaw, Rogers, Telus, for a service, but you don’t know about the costs of a single cell phone or how much data costs, but the next one always seems to be free. If you could offer drivers, transit users, a package to give them access to the entire system, charge them only once, that sounds pretty good, right? A possibility, right? I bet that’s being discussed. If you charge people $500 for a transportation package. You don’t have to own a car, you don’t have to insure or maintain it. You suddenly have a cash flow as great as any overnight, it’s huge. It would become bigger than governments.”
The commission is expected to make a final recommendation to TransLink’s board of directors in spring 2018.
“This would be impossible to consider doing without a lot of public consultation,” Price continues.
“There’s no way politicians can move on an issue like radical change on pricing on transportation unless they have some kind of mandate to do so.”
The Mobility Pricing Independent Commission is doing more research and more speaking with the public over the next few months.
Before that, they will release their initial findings Wednesday at noon at the University of British Columbia’s Robson Square campus.
What’s the one commodity that we all want to have, but desperately hope we never have to use? That one product that provides a sense of reassurance and peace of mind, yet in many instances remains untouched by us for its life? That one safety net that we are happy to continue to pay large for, yet rarely implement?
Insurance.
On a Saturday in January, 1951, a young Warren Buffett caught the train from New York to Washington DC and headed to the Government Employees' Insurance Company's [GEICO] downtown headquarters. He had learnt that his hero from Columbia University, Ben Graham, was the Chairman. I'll let Buffett finish the story ....
"To my dismay, the building was closed, but I pounded on the door until a custodian appeared. I asked this puzzled fellow if there was anyone in the office I could talk to, and he said he'd seen one man working on the sixth floor.
And thus I met Lorimer Davidson, Assistant to the President, who was later to become CEO. Though my only credentials were that I was a student of Graham's, "Davy" graciously spent four hours or so showering me with both kindness and instruction. No one has ever received a better half-day course inhow the insurance industry functions nor in the factors that enable one company to excel over others. As Davy made clear, GEICO's method of selling - direct marketing - gave it an enormous cost advantage over competitors that sold through agents, a form of distribution so ingrained in the business of these insurers that it was impossible for them to give it up. After my session with Davy, I was more excited about GEICO than I have ever been about a stock."
It was a fortuitous meeting ... Buffett tells the Berkshire shareholders .. "Berkshire would not be where it is today if Davy had not been so generous with his time on a cold Saturday in 1951."
Like any type of investing, investing in insurance companies requires a solid understanding of the intricacies of the industry. Given it's specialised nature, it generally sits outside most investors circle of competence.
An insurance company differs from your typical manufacturer or service corporation. The positive differentiating characteristics were well encapsulated by John Rothchild, in the book 'The Davis Dynasty', which chronicles another of the last centuries' great insurance investors - Shelby Davis.
"Insurance companies enjoyed some terrific advantages, as compared to manufacturers. Insurersoffered a product that never went out of style. They profited from investing their customers' money. They didn't require expensive factories or research labs. They didn't pollute. They were recession-resistant. During hard times, consumers delayed expensive purchases (houses, cars, appliances, and so on), but they couldn't afford to let their home, auto, and life insurance policies lapse. When a sour economy forced them to economize, people drove fewer miles, caused fewer accidents, and filed fewer claims-a boom to auto insurers. Because interest rates tend to fall in hard times, insurance companies' bond portfolios become more valuable. These factors liberated insurers' earnings from the normal business cycle, and made them generally recession-proof "
That's not to say it's all positive; there are plenty of pitfalls to be aware of. Over the last half century Warren Buffett has himself generously shared his wisdom on the insurance industry in the annual Berkshire letters. While far from all encompassing, this post draws on those letters to highlight some of the nuances and the positive and negative aspects of the insurance industry.
What is Insurance?
"Simply put, insurance is the sale of promises. The “customer” pays money now; the insurer promises to pay money in the future if certain events occur. Sometimes, the promise will not be tested for decades. (Think of life insurance bought by those in their 20s.)"
Limited Obsolescence
"Insurance will always be essential for both businesses and individuals"
Low Historic Correlation
"[Our insurance groups produces earnings] that are not correlated to those of the general economy [delivering] outstanding results in 2008 and have excellent prospects"
Float
"Float arises because premiums are received before losses are paid, an interval that sometimes extends over many years. During that time, the insurer invests the money."
"There is very little “Berkshire-quality” float existing in the insurance world."
Combined Ratio
"The combined ratio represents total insurance costs (losses incurred plus expenses) compared to revenue from premiums: A ratio below 100 indicates an underwriting profit, and one above 100 indicates a loss."
Cost of Float
"Our cost of float is determined by our underwriting loss or profit. In those years when we have had an underwriting profit, our cost of float has been negative. In effect, we have been paid for holding money."
"Because loss costs must be estimated, insurers have enormous latitude in figuring their underwriting results, and that makes it very difficult for investors to calculate a company's true cost of float. Errors of estimation, usually innocent but sometimes not, can be huge. The consequences of these miscalculations flow directly into earnings."
"Since our float has cost us virtually nothing over the years, it has in effect served as equity."
What Gives an Insurance Business Value?
"An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds. But the business is a lemon if its cost of float is higher than market rates for money."
How to Evaluate an Insurance Company
"How to evaluate an insurance company - The key determinants are: (1) the amount of float that the business generates; (2) its cost; and (3) most important of all, the long-term outlook for both of these factors."
"Only by making an analysis that incorporates both underwriting results and the current risk-free earnings obtainable from float can one evaluate the true economics of the business that a property-casualty insurer writes."
Four Disciplines to a Sound Insurance Operation
"At bottom, a sound insurance operation needs to adhere to four disciplines. It must (1) understand all exposures that might cause a policy to incur losses; (2) conservatively assess the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) set a premium that, on average, will deliver a profit after both prospective loss costs and operating expenses are covered; and (4) be willing to walk away if the appropriate premium can’t be obtained."
Where Most Insurers Go Wrong
"Many insurers pass the first three tests [above] and flunk the fourth. They simply can’t turn their back on business that is being eagerly written by their competitors. That old line, “The other guy is doing it, so we must as well,” spells trouble in any business, but in none more so than insurance."
Good Underwriting
"A good underwriter needs an independent mindset akin to that of the senior citizen who received a call from his wife while driving home. “Albert, be careful,” she warned, “I just heard on the radio that there’s a car going the wrong way down the Interstate.” “Mabel, they
don’t know the half of it,” replied Albert, “It’s not just one car, there are hundreds of them.”
Growth
"Any insurer can grow rapidly if it gets careless about underwriting."
'We shrank - and we will do so again from time to time in the future. Our large swings in volume do not mean that we come and go from the insurance marketplace. Indeed, we are its most steadfast participant, always standing ready, at prices we believe adequate, to write a wide variety of high-limit coverages."
Losses
"There are a lot of ways to lose money in insurance, and the industry is resourceful in creating new ones."
Pricing
"No matter what others may do, we will not knowingly write business at inadequate rates."
"Appropriate prices don’t guarantee profits in any given year, but inappropriate prices most certainly guarantee eventual losses.
Interest Rates
"As interest rates have fallen, however, the value of float has substantially declined."
Surprises
"Virtually all surprises in insurance are unpleasant ones."
"Surprises in insurance are far from symmetrical. You are lucky if you get one that is pleasant for every ten that go the other way."
P&C Businesses
"One reason we were attracted to the P/C business was its financial characteristics: P/C insurersreceive premiums upfront and pay claims later. In extreme cases, such as those arising from certain workers’ compensation accidents, payments can stretch over many decades. This collect-now, pay-later model leaves P/C companies holding large sums – money we call “float” – that will eventually go to others. Meanwhile, insurers get to invest this float for their own benefit. Though individual policies and claims come and go, the amount of float an insurer holds usually remains fairly stable in relation to premium volume. Consequently, as our business grows, so does our float."
"Unfortunately, the financial statements of a property/casualty insurer provide, at best, only a first rough draft of earnings and financial condition."
"The determination of costs is the main problem. Most of an insurer’s costs result from losses on claims, and many of the losses that should be charged against the current year’s revenue areexceptionally difficult to estimate. Sometimes the extent of these losses, or even their existence, is not known for decades."
Casualty vs Property Lines of Insurance
"Because our business is weighted toward casualty and reinsurance lines, we have more problems in estimating loss costs than companies that specialize in property insurance. (When a building that you have insured burns down, you get a much faster fix on your costs)"
Long vs Short Tail
"The industry calls malpractice and certain other kinds of liability insurance "long- tail" business, in recognition of the extended period during which insurers get to hold large sums that in the end will go to claimants and their lawyers"
"In long-tail situations a [higher] combined ratio can prove profitable, since earnings produced by the float will exceed the [amount] by which claims and expenses overrun premiums. The catch, though, is that "long-tail" means exactly that: Liability business written in a given year and presumed at first to have produced a [acceptable] combined ratio may eventually smack the insurer with 200, 300 or worse when the years have rolled by and all claims have finally been settled."
"We write lots of "long-tail" business - that is, policies generating claims that
often take many years to resolve. Examples would be product liability, or directors and officers liability coverages. With a business mix like this, one year of reserve development tells you very little."
"The unpredictability of our legal system makes it impossible for even the most conscientious insurer to come close to judging the eventual cost of long-tail claims."
"In a given year, it is possible for an insurer to show almost any profit number it wishes, particularly if it (1) writes “long-tail” business (coverage where current costs can be only estimated, because claim payments are long delayed), (2) has been adequately reserved in the past, or (3) is growing very rapidly.
"Where "earnings" can be created by the stroke of a pen, the dishonest will gather. For them, long-tail insurance is heaven."
Proper Reserves
"When insurance executives belatedly establish proper reserves, they often speak of "reserve strengthening," a term that has a rather noble ring to it. They almost make it sound as
if they are adding extra layers of strength to an already-solid balance sheet. That’s not the case: instead the term is a euphemism for what should more properly be called "correction of
"The insurance industry is cursed with a set of dismal economic characteristics that make for a poor long-term outlook: hundreds of competitors, ease of entry, and a product that cannot be differentiated in any meaningful way. In such a commodity-like business, only a very low-cost operator or someone operating in a protected, and usually small, niche can sustain high profitability levels.
"Many insureds, including the managers of large businesses, do not even know the names of their insurers.) Insurance, therefore, would seem to be a textbook case of an industry usually faced with the deadly combination of excess capacity and a “commodity” product."
"Most insureds don’t care from whom they buy. Customers by the millions say “I need some Gillette blades” or “I’ll have a Coke” but we wait in vain for “I’d like a National Indemnity policy, please.”
"Insurers have generally earned poor returns for a simple reason: They sell a commodity-like product."
"Insurance companies offer standardized policies which can be copied by anyone. Their only products are promises. It is not difficult to be licensed, and rates are an open book. There are no important advantages from trademarks, patents, location, corporate longevity, raw material sources, etc., and very little consumer differentiation to produce insulation from competition."
Industry Economics
"Market share is not an important determinant of profitability: In this business, in
contrast to the newspaper or grocery businesses, the economic rule is not survival of the fattest. Second, in many sectors of insurance, including most of those in which we operate, distribution channels are not proprietary and can be easily entered: Small volume this year does not preclude huge volume next year. Third, idle capacity - which in this industry largely means people - does not result in intolerable costs. In a way that industries such as printing or steel cannot, we can operate at quarter-speed much of the time and still enjoy long-term prosperity."
Industry Pricing
"Pricing behaviour in the insurance industry continues to be exactly what can be expected in a commodity-type business. Only under shortage conditions are high profits achieved, and such conditions don’t last long. When the profit sun begins to shine, long-established insurers shower investors with new shares in order to build capital. In addition, newly-formed insurers rush to sell shares at the advantageous prices available in the new-issue market (prices advantageous, that is, to the insiders promoting the company but rarely to the new shareholders). These moves guarantee future trouble: capacity soars, competitive
juices flow, and prices fade.
Demand & Supply
"Unfortunately, there can be no surge in demand for insurance policies comparable to one that might produce a market tightness in copper or aluminium. Rather, the supply of available insurance coverage must be curtailed. “Supply”, in this context, is mental
rather than physical: plants or companies need not be shut; only the willingness of underwriters to sign their names need be curtailed.
"The amount of industry capacity at any particular moment primarily depends on the mental state of insurance managers"
"Major capacity withdrawals require a shock factor such as a natural or financial “mega-disaster”
Risk of Courts Orders on Casualty Insurance
"We have far underestimated the mushrooming tendency of juries and courts to make the “deep pocket” pay, regardless of the factual situation and the past precedents for establishment of liability. We also have underestimated the contagious effect that publicity regarding giant awards has on juries. "
Insolvent Competitors Can stay in Business
"In most businesses, of course, insolvent companies run out of cash. Insurance is different: you can be broke but flush. Since cash comes in at the inception of an insurance policy and losses are paid much later, insolvent insurers don’t run out of cash until long after they have run out of net worth. In fact, these “walking dead” often redouble their efforts to write business, accepting almost any price or risk, simply to keep the cash flowing in."
Low Costs
"The most important ingredient in GEICO’s success is rock-bottom operating costs, which set the company apart from literally hundreds of competitors that offer auto insurance. The difference between GEICO’s costs and those of its competitors is a kind of moat that protects a valuable and much-sought-after business castle."
Driverless Cars
"At some point in the future – though not, in my view, for a long time – GEICO’s premium volume may shrink because of driverless cars – but even the most casual follower of business news has long been aware of them. None of these problems, however, is crucial to Berkshire’s long-term well-being"
Super-Cat [Catastrophe] Business
"In this operation, we sell policies that insurance and reinsurance companies purchase in order to limit their losses when mega-catastrophes strike."
"Since truly major catastrophes are rare occurrences, our super-cat business can be expected to show large profits in most years -- and to record a huge loss occasionally."
"Berkshire is sought out for many kinds of insurance, both super-cat and large single-risk, because: (1) our financial strength is unmatched, and insureds know we can and will pay our losses under the most adverse of circumstances; (2) we can supply a quote faster than anyone in the business; and (3) we will issue policies with limits larger than anyone else is prepared to write. Most of our competitors have extensive reinsurance treaties and lay off much of their business."
Climate Change
"We do know that it would be a huge mistake to bet that evolving atmospheric changes are benign in their implications for insurers."
Re-Insurance
"The saying, "a fool and his money are soon invited everywhere," applies in spades in
reinsurance, and we actually reject more than 98% of the business we are offered."
"A bad reinsurance contract is like hell: easy to enter and impossible to exit."
"Choosing the wrong reinsurer, however – one that down the road proved to be financially strapped or a bad actor – would put the original insurer in danger of getting the liabilities right back in its lap."
Alignment
"[It is] vital that the interests of the people who write insurance business be aligned - on the downside as well as the upside - with those of the people putting up the capital. When that kind of symmetry is missing, insurers almost invariably run into trouble, though its existence may remain hidden for some time."
Importance of Management
"There is no question that the nature of the insurance business magnifies the effect which individualmanagers have on company performance."
"[The Insurance business] tends to magnify, to an unusual degree, human managerial talent - or the lack of it"
Insurance Cycle
"Commentators frequently discuss the "underwriting cycle" and speculate about its next turn. If that term is used to connote rhythmic qualities, it is in our view a misnomer that leads to faulty thinking about the industry's fundamental economics."
Summary
It's evident that while insurance companies have attractive characteristics, there are plenty of risks for the inexperienced. Berkshire's competitive advantages include culture, very low cost, a fortress balance sheet and the willingness to walk away from mis-priced business. It's the latter point where most insurers go wrong.
The right management is absolutely critical to success in this industry. The skillset of a good underwriter parallels many of the skills of a the successful investor. Both must think long term, be conservative, be open-minded and creative in considering potential risks. Alignment of interests, is also essential.
"[Given the time lag between revenues and costs and the risk of under reserving] management quality becomes critical - perhaps more so than other industries. Marathon looks for a long history of stable returns, conservative reserving and the ability to resist growing premiums when profitable opportunities are scarce. Indeed rapid growth of premiums at any time is a red flag, as it is often a precursor to reserving problems. Inorganic growth should also be viewed with caution given the asymmetry of information between the buyer and seller over reserving risk.
.. The way management incentives are structured can be an important way to avoiding these pitfalls - a focus on return on equity over earnings growth is preferable, with return targets ideally set over time period longer than a year
It is important to tread with caution, as the time lag between revenue and costs means it is all the more important to invest alongside those rare management teams who can put long-term value creation above more short-term concerns" Marathon Asset Management
I'll leave the closing remarks to Charlie Munger, who sums it all up so well ...
“I’m glad we have insurance, though it’s not a no-brainer, I’m warning you. We have to be smart to make this work.” Charlie Munger
"Berkshire’s marvellous outcome in insurance was not a natural result. Ordinarily, a casualty insurance business is a producer of mediocre results, even when very well managed. And such results are of little use. Berkshire’s better outcome was so astoundingly large that I believe that Buffett would now fail to recreate it if he returned to a small base while retaining his smarts and regaining his youth." Charlie Munger 2014 , Golden Anniversary Letter
