Here at Hastings & Hastings, our highly qualified team of accident lawyers works diligently handling accident cases, allowing you to focus on the process of healing and putting your life back together. The moment you choose to retain Hastings & Hastings as your accident lawyers, you can rest easy knowing you have secured the highest level of representation. With nearly four decades of experience handling accident cases in Arizona, our reputation as aggressive but fair negotiators precedes us. It allows us to achieve excellent results in a timely fashion.
As personal injury lawyers, we work closely with insurance companies on a daily basis. Other than the individuals who work within the insurance industry, we may be some of the most knowledgeable people around regarding the industry’s inner workings. To people on the outside, the insurance world looks like a complex, completely incomprehensible place. A perception which is quite close to the truth. Understanding how the complicated machinery of the car insurance world functions takes a lot of work.
Today, on the Hastings & Hastings blog, we are going to share our expertise regarding the insurance industry. We are going to take a close look at the role insurance plays when you get in an accident. We are going to offer advice for interacting with your insurance providers. And finally, we are going to cover ways to make sure you are getting the best deal when shopping for insurance, saving you money each and every month. Without further ado, let’s dive into it.
Behind Closed Doors – A Look Inside the Industry
First, we are going to ask a series of questions related to the function of the insurance industry. How does the industry work? How do they make money? How do they determine things like premiums and deductibles? Is the insurance industry regulated? If so, how are they regulated, and who performs the regulation?
In short, insurance companies function by managing and pooling risk. Individuals purchase insurance because they are inherently at risk. At risk of being involved in a car accident. At risk of getting sick or developing a health condition. At risk of being struck by a natural disaster. These are all risks that cannot be fully mitigated or prevented. These risk also pose major financial consequences, the likes of which most individuals are entirely unprepared to meet on their own. And this is why insurance exists.
Essentially, the chances of these risks occurring are relatively small. The chances of being struck by lightning sometime during your life are just 1 in 12,000. The odds of being in a fatal car accident are just 1 in 18,000. The lifetime odds of being in severely hurt in an earthquake are approximately 1 in 20,000, or about equal to the odds of being shot and killed by a toddler. Yes, these incidents do happen. Otherwise, the odds would be zero, but the chances of them happening to any one individuals are slim, which is the primary principle behind the insurance industry.
Insurance companies require buy-in from a large number of people to function properly. Once this has happened, they function by redistributing risk and liability. Essentially, not everyone covered by insurance is going to require the support of the insurance company.
How the Money Flows
Let’s talk about money. After all, money is what makes the world go around. It’s what allows the insurance industry to function as well.
First, we need to define a few terms:
Premium: An insurance premium is the amount of money an individual pays to a company to retain their services.
Deductible: A deductible is pre-agreed upon amount which an individual must pay following a loss or an incident. Once this amount is paid, the insurance company will cover all other costs up to established limits.
Premiums and deductibles are the two primary forces working in the insurance industry. They allow it to live and breathe. They allow insurance companies to make money! And to pay out money to customers in need. To distill the issue down into one clear point, premiums are the spring from which the flow of money originates within an insurance company.
A basic outline of the system works like this. A large group of people makes small individuals payments (premiums) to an insurance company. These individuals do so to protect themselves should a major accident ever occur. For most of them, this will never happen. However, a small percentage will experience an accident or an incident at some point during their lifetime. Usually, these incidents incur major financial costs. Costs which, under normal circumstances, individuals would be unable to afford. But, because they have insurance, they are going to be okay. The insurance company pays them out for their damages up to a prearranged limit. What would have been an insurmountable financial burden is taken care of by the insurance company.
“Well,” you may be thinking to yourself, “That sounds great and all. Like a tidy little ecosystem. But how do insurance companies decide what to charge us? Do we all get charged the same amount? What if I am less likely to be involved in an accident than another person? Do I get charged the same?”
Basically, there is complicated math working behind the scenes of every decision that happens at an insurance company. An insurance policy, or the contract between you and the insurance company, has many variables which interact with each other to determine the overall structure of the policy. What you pay on a monthly basis (your premium) depends on the limits of your policy, the size of your deductible, additional coverage, and a long list of outside factors. Many of these factors are yours to control. If you would like to have a smaller deductible, you can choose to pay a larger premium. If you want to hold rental insurance or uninsured motorist coverage, your premium will be higher. However, there are many factors beyond the structure of your policy which may influence your premium.
When it comes to auto insurance, one of the primary factors insurance companies will use in determining your premium is your driving record. Past behavior is one of the clearest indicators of future liability. If you have an extensive record of accidents, tickets, and other traffic incidents, the insurance company is assuming a high level of risk by covering you. Therefore, you will have to pay more for coverage. Other factors include the make/model of your car, your age, gender, and marital status, where you live, your credit rating, and your driving habits (how often/far you drive).
As you can tell, insurance a complex industry which is nearly impossible to understand in its entirety. It is a legal necessity to maintain an auto insurance policy as a driver. In order for insurance to function properly, everyone must participate in the system. Insurance exists to protect you in the event of an accident. However, insurance companies will usually not have your best interest in mind. Their goal is to close an insurance claim as quickly and inexpensively as possible.
If you have been involved in an accident, you should explore your legal options and schedule a free legal consultation with Hastings & Hastings.
Call (480)267-9227 to schedule your free legal consultation today.