Tag Archives: Orbitz

Future of Insurance Looks Very Different

A few years ago, the satire site, Cracked, launched a series of fake commercials called “Honest Ads” satirizing various industries. One of their fake commercials was an “honest ad” for a fake insurance company selling car insurance. The commercial features a familiar-looking, aging insurance agent in a suit (and a cape, cuz insurance sales people are also superheroes) explaining in a friendly voice what you really get when you buy car insurance. According to this guy, you’ll pay a lot of money every month for a product that:

  • you probably don’t actually want, but will buy anyway, because you have to -– or else you’ll be a criminal;
  • doesn’t offer you any actual protection (even though you could use protection), just a small portion of the money that you pay into it back, but only if something bad happens;
  • you may actually never use, even though you pay a lot of money for it;
  • if you need it, you’ll have to fight your insurance company to be able to use it, even though, again, you pay a lot of money for it; and
  • if you are able to use it, you’ll be punished, by either being charged a lot more money or being kicked off of your policy

Sign me up … ?

The effect is a poignant commentary on why people hate insurance and insurance companies and why, even as insurance products may be improving, at the end of the day no one really wants to buy insurance. That’s why we think that the insurance company of the future won’t be an insurance company at all (or at least not just an insurance company). Sure, people will still need insurance, and someone is going to sell it to them, but to win in the future,you’ll need to give them more than just insurance, or something else entirely.

With this in mind, here are a few ways insurance companies and startups can move beyond insurance to start offering true value to their customers and repair a relationship that has been tarnished by too many years of arcane business practices:

1. Protect your customer.

As the Cracked commercial made clear, a lot of insurance companies message themselves as protectors of the home, the family, the car etc., but most do little to protect their customers beyond offering them money when things go wrong – property is still damaged, cars are still stolen, loved ones are still lost. But what if instead of just compensation, insurance companies gave their customers actual protection?

The smart home security company Ring, recently acquired by Amazon, was founded with a mission to make people’s homes and neighborhoods safer. In a talk at last year’s InsureTech Connect, Ring CEO Jamie Siminoff explained that “our KPI is around how much crime we reduce, not how much revenue we produce.” Imagine an insurance company that tracked its success in this way. Because Ring invested and tracked against a KPI not just around revenue, but around customer safety, it has been able to prove that homes where Ring is installed are safer homes, which also make for safer neighborhoods — a fact that has resulted in more revenue and more business opportunities for Ring. Not only was it acquired by Amazon this past spring, but long before that it was able to form partnerships with insurance companies like American Family, which provides customers a discount on a Ring doorbell and a 5% discount on their homeowners or renters insurance.

See also: Smart Home = Smart Insurer!  

Like Ring, insurance companies should be thinking more about how to protect their customer and less about how to protect themselves from their customer. People don’t generally want to crash their cars, flood their basements, have their homes broken into. Helping customers better protect themselves from the risks that require insurance delivers value to the customer and to the company, and ultimately provides a way for insurance companies to develop trust with their customers.

2. Entertain your customer.

When Amazon first made waves as an online bookstore, few would have predicted that Amazon would one day become a major movie studio and video streaming platform. Amazon’s foray into the movie business, announced in 2010, was never about making money in box office sales or online streaming (although Amazon does both). It was about getting more people to sign up for Prime subscriptions and spend more time and money shopping on the site. And Amazon understood that investing in quality entertainment that could be included in a Prime membership was a promising approach.

Not that insurance companies need to become entertainment or media companies, too, but investing in high-quality content that people want (and like) to consume can also be a means of selling insurance. The U.K. insurance comparison website, Compare the Market understood that, while people may not like insurance, they definitely like meerkats. Hopping on the meerkat meme bandwagon, the company launched the website comparethemeerkat.com (a play on market, if you didn’t catch that), where consumers can go online and compare sets of meerkats in the way they might compare auto insurance policies or a credit cards. Beyond comparing meerkats on the website, you can also watch short videos (which are also commercials) about the lives of your favorite meerkat characters, like Sergei, head of IT, who joins the circus to escape the stress of his job at comparethemeerkat.com.

Although meerkats may have nothing to do with markets, they definitely make the idea of comparing insurance policies and credit cards a lot more fun. And whether I’m in the market for insurance, I’m always in the market for another meerkat meme … and when it comes time to look for new insurance, I know where I’ll go looking.

3. Educate your customer.

Fiverr is a freelancer marketplace that provides a platform for freelancers to sell their services, connecting entrepreneurs and workers with the companies and individuals who want to hire them. Just last month, it launched Fiverr Elevate, a platform where Fiverr freelancers can go to take online courses to help them better run their businesses. As Fiverr Freelancers, they earn credits that they can put toward courses.

Educating freelancers and small business owners is not what Fiverr is all about, but education is something that benefits customers and would-be customers and allows the company to build a relationship that’s based on value-added, not necessity. Like entertainment, education is sticky and builds trust with customers outside of the core products and services sold, which in insurance is important, considering that the primary interaction a person has outside of binding or renewing a policy is filing a claim in a moment of crisis, after something bad has happened.

4. Solve problems for your customer.

While researching and observing workers in the gig economy for an insurance prototype we designed, we heard more than once from gig workers that they probably won’t buy additional insurance, even when exposed to additional risk through their work that their existing policies do not cover.. For example, one Uber driver we spoke with used to work at an insurance company and knew that if she got in an accident while driving for Uber she wouldn’t be covered. Yet because Uber didn’t make her buy additional coverage, she decided not to (a lot of people buy insurance because they have to, not because they want to). Another Uber driver we spoke with described the insurance our prototype was offering as “third tier,” meaning that it would be coverage if his personal insurance and Uber didn’t cover him. Like the other driver, he didn’t think he would buy this kind of insurance. He’d rather take the risk.

Offering more than just insurance is particularly pertinent for insurance that isn’t mandatory. Insurance needs to solve other problems for customers that aren’t being solved elsewhere. Our gig economy prototype, for example, allowed gig workers to connect all of their apps to our platform, and provided them with a dashboard that would allow them to track all their gig work in one place, analyzing hours and peak earning times, and offering insights that would allow gig workers to optimize their schedules and their earnings. While at the end of the day our prototype was selling insurance, the users we talked to ultimately wanted to buy it not because it was insurance, but because it was more than insurance – and it was solving an important problem they were experiencing as gig workers.

Jetty, the renters insurance startup, is doing something similar. Beyond selling renters insurance, it is also helping solve a critical problem for millennials living in cities. Jetty Passport helps people get into apartments more easily by paying security deposits and acting as guarantors. For a fraction of the price of the security deposit and for an additional 5-10% of the rent, customers don’t have to worry about either. For those using Jetty Passport, Jetty renters insurance, starting at $5 a month, is a no-brainer.

See also: Startups Take a Seat at the Table  

5. Follow your customer.

While it may be true that most people don’t like buying insurance, there are a lot of other things these same people do like buying. Airplane tickets, clothing and apparel, stuff for their house. Finding out what else your customers are doing and buying (and where), and selling them insurance through these channels can help insurance companies align themselves with companies their customers actually do like and trust, while also lowering the cost of customer acquisition so you can offer more competitive pricing.

In March, AIG Travel announced that it is partnering with Expedia to sell travel insurance on Expedia sites, including Expedia.com, CheapTickets, Orbitz, and Travelocity, giving Expedia customers booking flights, hotels and other travel arrangements the option to insure their bookings for a small fee. AIG also announced a partnership with United Airlines to do the same earlier in the year.

Slice insurance, the homeshare insurance startup, has done something similar, partnering with AirBnB to sell hosts on-demand insurance when renting out their homes.

These types of partnerships are a win-win for customers, insurance companies and the platform partners. Platforms get to expand their offering to their customer; insurance companies get to build a direct relationship with customers through a channel they like and trust’ and they get access to more customer data to better understand purchasing behaviors outside of insurance. Customers get easy access to insurance coverage that will benefit them without having to go out of their way to make an additional transaction.

It’s no secret that insurance companies have an image problem, one that has been created over more than a century of legacy business practices that make transforming, innovating and developing more customer-centric products easier said than done. But as insurance companies do the heavy lifting to make their businesses more agile and responsive to the market, finding ways to go beyond insurance –through education, entertainment, creative problem solving and thoughtful partnerships– will help them build more trusting relationships with customers and not only maintain current customers but expand into new markets.

You can find the article originally published here on Cake & Arrow.

Rental Car Waiver: To Buy or Not to Buy?

When I Googled “should I buy the rental car damage waiver, I got 40.6 million hits. Needless to say, much has been written about this issue. But much of what has been written is BAD (aka horrible and dangerous) advice.

If you have auto insurance, is that good enough? What about credit card coverage? This article explores the issues and suggests some answers, at least one of which you might not like. (Note: This article builds on an article I first published in 1998, titled “Top 10 Reasons to Purchase the Rental Car Damage Waiver.”]

The vast majority of consumer articles suggest that the purchase of the loss damage waiver (LDW) is not necessary if you have auto insurance or credit card coverage. For example, in a 2014 article in U.S. News & World Reports titled “7 Costly Car Rental Mistakes to Avoid,” the very first “mistake” involves buying insurance you don’t need. The article says your auto insurance policy “may” cover collision and quotes someone who says, “The credit card coverage will kick in for anything your personal policy doesn’t cover.” Needless to say, “may” and “will” are two different things.

While many auto policies and some credit cards may provide coverage for damage to a rental car, it is almost certainly not complete, and four- to five-figure uncovered losses are not at all uncommon. The purchase of the LDW (with caveats), along with auto insurance, provides a belt and suspenders approach to risk managing the rental car exposure.

Let’s explore the value and deficiencies of auto insurance, credit card coverage and loss damage waivers.

Personal Auto Policies

In the article I wrote in 1998 and have since updated, I enumerate many reasons why buying the loss damage waiver is a good idea. I won’t repeat those reasons in their entirety, but I’ll highlight the more important issues that have resulted in uncovered claims that I’m personally aware of, based on more than 20 years of managing such issues. We’ll start with the current 2005 ISO Personal Auto Policy (PAP) as the basis of our discussion, with some references to non-ISO auto policies.

The ISO PAP extends physical damage coverage to private passenger autos, pickups, vans and trailers you don’t own if at least one declared auto on your policy has such physical damage coverage. But physical damage coverage does not extend to a motor home, moving truck, motorcycle, etc. that you are renting.

Damage valuation is on an actual cash value (ACV) basis, while most rental agreements require coverage for “full value” (translation: whatever the rental car company says is the value), and most PAPs exclude any “betterment” in value.

Many non-ISO PAPs have an exclusion or dollar limitation on non-owned autos or specific types of rental vehicles such that rental, for example, of an upscale SUV or sports car may have limited or even no coverage.

Many PAPs limit or do not cover the rental company’s loss of rental income on a damaged auto. There is often an option to provide increased limits for this coverage, but many price-focused consumers may decline such coverage. Even where this coverage is provided, many insurers may only be willing to pay for the usage indicated by fleet logs while the rental agency wants the full daily rental value. In one claim, the renter was charged $2,000 more than his insurer was willing to pay. In another claim involving a luxury car that was stolen from his hotel parking lot, the renter was hit with the maximum daily rental rate of $300, for a total loss of use charge of $9,000 (that he negotiated down to $4,500). In still another claim, following the 2011 tsunami that hit Japan, replacement parts for a rental car were unavailable for several months, and the renter incurred a $6,000 loss-of-use charge by the rental car company.

Probably the most significant deficiency in the PAP is the lack of coverage for diminished value claims. That’s the #1 reason I always buy the LDW. I’m personally aware of uncovered diminished value charges of $3,000, $5,000, $7,000 and $8,000 and read about one from a reliable source that totaled $15,000 on an upscale SUV rental.

In one case, a Florida insured traveled to Colorado for a rock-climbing vacation. He passed on purchasing the LDW for his four-day rental because “I’m an excellent driver, and I’ve got car insurance and credit card coverage.” Apparently, the driver of the vehicle that sideswiped his rental car while it was parked was not an excellent driver. The damage totaled $4,400 for repairs, $370 for administrative fees, $620 for loss of use and $3,100 in diminished value. Of the $8,490 total, $3,990 was uninsured and not covered by his credit card, the biggest component being the $3,100 diminished value charge. In addition, the driver ended up having to hire a Colorado attorney to assist in resolving the claim. The cost of the LDW for the entire trip would have been less than $100, a small fraction of the total cost of his vacation trip.

When insureds travel on business or vacation, a rental car is often valet-parked at a hotel or restaurant. The ISO PAP extends physical damage coverage for non-owned autos “while in the custody of or being operated by you or any ‘family member’.” So, the question is whether the vehicle is still in the custody of the insured while it’s being valet-parked or otherwise in the custody of the valet service. If you don’t know and you’re relying on your PAP for coverage, the best advice is probably to not valet-park a rental car.

There are many other deficiencies in the ISO PAP that apply, and you can read about them in the previously mentioned “Top 10” article on our website. The last point I’ll make is a reminder that the majority of auto policies in the marketplace are not “ISO-standard” forms. (To learn more about that, Google “independent agent magazine price check.”) Despite what you may be led to believe by auto insurance advertisements or articles that imply that all auto policies and insurers are the same, there are potentially catastrophic differences, including coverage deficiencies with regard to rental cars. There are unendorsed non-ISO policies that don’t cover non-owned autos, period; others that exclude business use of such autos or non-private passenger vehicles (this one shows up in policies of major national carriers, not just “nonstandard” auto insurers); others that exclude vehicles that weigh more than 10,000 pounds; and so on.

Conclusion? An auto policy simply is not adequate to cover the rental car physical damage exposure.

Credit Card Coverages

Read a few of the many articles on the Internet about using credit card programs to fund damage to rental cars, and you would think that little more is needed to adequately address the exposure. Unfortunately, credit card programs have as many, or more, deficiencies as does the PAP alone. Anyone relying on auto insurance and credit cards would be well-advised to study the credit card programs. In his article, “Rental Car Agreements, LDWs, PAPs, and Credit Cards,” David Thompson, CPCU writes:

“Many major credit cards provide some limited, free coverage for rental cars. Most post the provisions related to rental cars on the card issuer’s web site. While these can run several pages, three specific conditions [that] limit, restrict or invalidate the free coverage are show-stoppers. For example:

“The following conditions limit, restrict, void or invalidate the auto rental damage waiver (DW) coverage provided by your credit card:

“(1) This auto rental DW supplements, and applies as excess of, any valid and collectible insurance. For coverage to apply, you must decline the DW offered by the rental company.

“(2) The following losses are not covered by this auto rental DW coverage: (a) Any loss [that] violated the rental agreement of the rental company; (b) Any claim for diminished value of the rental car.

“(3) Any loss or damage to certain types of vehicles—see list.”

In other words, (1) credit card coverage is excess over ANY collectible insurance, (2) you must decline the rental company’s LDW, (3) violation of the rental agreement precludes coverage, (4) like the PAP, there is no coverage for diminished value, which we’ve seen can total thousands of dollars and (5) certain types of vehicles are excluded. Excluded vehicles may include pick-up trucks, full- sized vans and certain luxury cars.

And these are only part of the full list of limitations often found in these programs. Another common limitation is that loss of use is only paid to the extent that the assessment is based on fleet utilization logs. One major credit card only covers collision and theft even though the rental agreement typically makes the user almost absolutely liable for all damage, including fire, flood and vandalism. Some credit cards offer broader optional protection plans, but typically they also exclude coverage if there is a violation of the rental agreement and don’t cover diminished value.

Another issue with reliance on credit cards is that the rental company may charge uncovered fees that max out the credit limit on the card. If you’re 1,000 miles from home on vacation with a maxed-out credit card, that can present problems.

Loss Damage Waivers

Many people don’t buy the rental car company’s LDW because they think they have “full coverage” between their auto policy and credit cards. Many see what can be a significant charge and choose not to buy the LDW on the premise, “This’ll never happen to me.”

I rarely rent cars on business trips or vacation, but I experienced a major claim with a hit-and-run in a restaurant parking lot the night before a 6 a.m. flight. I had bought the $12.95 LDW for my four-day trip, so I simply turned in the vehicle at the airport with little more than a shrug.

Thompson, who rents cars fairly often, says he has walked away from damaged cars three times. Returning a rental at the Ft. Lauderdale airport, Thompson asked the attendant how many cars a month are returned with damage. She responded that, in her typical 12-hour shift, 15 cars are returned with damage and, in most cases, the damage was allegedly caused by someone else, not the renter. She estimated that only about 15% of renters buy the LDW.

The cost of the LDW admittedly can be significant, especially if you extrapolate what the effective physical damage insurance cost would be at that daily rate. But that’s only one way to view the investment in peace of mind, not to mention the avoidance of what can be significant claims.

On an eight-day vacation last year, the LDW cost me more than the actual rental and, in fact, more than my airline ticket. But I considered the LDW part of the cost of the vacation.

Is the LDW all you need? Is it foolproof? Well, kind of, as long as you follow the rental agreement. If you violate the rental agreement, you are likely to void the LDW. Many rental agreements consider the following to be violations:

  • Driving on an unpaved road or off-road (often the case in state or national parks or states like Alaska and Hawaii).
  • Operation while impaired by alcohol or drugs.
  • Any illegal use (parking violations?), reckless driving, racing or pushing or towing another vehicle.
  • Use outside a designated territorial limit.
  • Operation by an unauthorized driver.

This illustrates the advantage of using the belt and suspenders approach of the PAP plus the LDW. The ISO PAP does not exclude the first three rental agreement violations, and the territorial limit is usually broader than any restrictive rental agreement territory outside of Mexico.

As for unauthorized drivers, some rental companies may automatically include a spouse or fellow employee or authorize them to drive for a fee. More often, the renter never reads the rental agreement and presumes anyone on the trip can drive. In one claim, a father and son were on vacation, and the father rented a car. The son had a driver’s license but was too young under the rental agreement to drive the car. The rental clerk made this clear at the time of rental. Despite knowing this, the father allowed the son to drive, and he wrecked the vehicle. Not only was the LDW voided, the father’s non-ISO PAP excluded the claim because the son was not permitted to drive the car.

A special case of unauthorized drivers could be-valet parking at a hotel or restaurant. Some agreements might except valet parking, so it’s important to determine at the time of rental whether valet parking is covered.

A note on third-party LDWs: In 2011, a fellow CPCU rented a car through Orbitz or Expedia, which offered an LDW at the time of the reservation. He mistakenly assumed this was the same LDW offered by the rental car company, but it was underwritten by a separate entity. During his trip, the rental car was damaged by a deer on a rural Montana road. To make a long story short, the third-party LDW was not a true “no liability” LDW warranty of the type offered by the rental car agency, and the result was, after negotiations on the uncovered portion of the charges (including diminished value), he had to pay in excess of $1,000 out of pocket.

Conclusions

When I rent a car on a business trip or vacation, I price the rental to include the LDW and make my decision, in part, on that basis. The peace of mind alone is invaluable, and, again, I consider the cost to be comparable to my decision to stay in a decent, secure hotel.

If you rent cars frequently, consider negotiating a price including LDW with one or more rental car agencies. Otherwise, caveat emptor. If you are an insurance professional giving advice to consumers about whether to purchase the LDW, it would likely be in your and your customer’s best interest to recommend consideration of the LDW. Your E&O insurer will appreciate it.