"Underwrite" . . . a 35 Year Old Practice
Tempe, AZ (04/02/01) - According to the American College Dictionary the term "Underwrite" is defined as "insurance - a. to write one's name at the end of (a policy of insurance), thereby becoming liable in case of certain losses specified therein - b. to insure - c. to assume liability to the extent of (a certain sum) by way of insurance." Black's Law Dictionary defines "Underwrite" as "To insure life or property." Neither authority includes a most appropriate alternative definition having grown out of the insurance industry claims handling directive of "Write only what you can see!"
Deserves Its Own Definition !
"Underwrite" . . . "The practice of intentionally under estimating the cost to repair damage to, or the market value of, insured damaged property."
From the early days of an adjuster's career they are taught to "Write only what you can see!" It makes no difference if the front bumper has been driven through the glove box, if you can't "See" the damaged motor mounts then you don't "Write" for new motor mounts. The word-track rationale for this adjusting approach almost sounds reasonably conservative. If you are unable to physically inspect the motor mounts you would have no way of knowing they had not been worn out prior to the current collision involvement which would preclude them from coverage. That's the word-track rationale. However, the True Reason for this approach to handling claims is altogether different.
Enter . . the practice of "Profiling." Insurance companies understand that consumers who are experiencing some form of personal distress (divorce, death in family, etc.), or economic distress (minimum wage employment, single parent families, welfare recipients, etc.), or those with less than a mainstream education, will be less likely to challenge the values established by the insurance company. These consumers are expected to "Take-the-money-and-run."
At the other end of this "Profiling" spectrum will be the affluent who would be more likely to Trade-in the damaged vehicle on a new replacement.
Assume that 7 out of 10 consumers do not fit either of the above profiles. For the sake of this discussion, let us also assume that all 10 of these consumers' vehicles are reparable. Supplements will have to be written on 7 of the "Underwritten" damage appraisals to bring the claim settlement value up to a reasonable amount. Conversely, this means that 3 of the "Underwritten" damage appraisals will result in "Under-paid" settlements.
Now then . . . let's follow this thread a step further. Feed-back from the collision industry indicates average supplements are approximately 30% over initial damage appraisals. Collision industry statistics also show the "Average" collision repair to be at or about $2,600.00. If that figure represents 130% of initial damage repair appraisals, then the "Average" supplement would be $600.00. That means, in the above example, that 30% of consumers are receiving settlements an average of $600.00 less than should be paid.
Let's keep going . . . assume there are 5 Million auto damage claims each year (2% of the motoring public). Of those, 3 Million claims are resolved on a Reparable basis. When you multiply 3 Million damage repair claims by the 30% who fit the above referenced "Profile" you arrive at 900,000 consumers whose claims have been under-paid. Now multiply 900,000 consumers by the $600.00 projected under-payment (above) and you can see where the auto insurance industry "Saves" approximately $540,000,000 PER YEAR !
Any practice that picks $540 Million out of Consumers' pockets each year deserves to have its own definition in every dictionary.
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