Insurance, at its heart, is a bet by both sides. You are paying money out of your budget for protection from large losses: a totaled vehicle, a house fire, being off work for months due to an injury. The insurance companies are betting that all of the premiums they take in will total more than all of the claims they pay out. Every month you pay your premiums without a claim is like a little side-bet that they win. Whenever a claim occurs, you are asking them to honor their end of the bet, step up, and deliver the protection they promised. Whenever they can squelch on that bet, they will.
You are not part of the claims process very often (if ever). Insurance companies live and breathe it and are always looking for ways to minimize claims.
One particularly insulting insurance tactic is to give themselves credit for money you have been paid by other companies. The harmless-sounding term they use for this is “set-off.” To illustrate this, let’s switch gears for a moment to a different kind of bet: scratch-off lottery tickets. Say you have the good fortune to purchase two winning tickets; one for $3,000 and one for $5,000. Sounds like you won $8,000, right? Not in the insurance world. In their tortured thinking, you get the $3,000 ticket, and then they get to “set off,” or in other words, take away, those winnings from the $5,000 ticket, magically transforming it into a $2,000 ticket. $3,000 plus $2,000 = $5,000 total to you, not $8,000. When the dust settles, it’s like the $3,000 ticket never happened. And to add insult to injury, let’s say they deducted the $4 you spent for the tickets from your winnings.
Obviously the Ohio Lottery does not work this way. But insurance companies are constantly pushing for changes to the law that can infect the claims process with twisted math like this. What’s worse is that this hurts injured friends and family members, not scratch-off ticket buyers. For a real world example, if you paid them to cover your injuries caused by an uninsured motorist, they owe you for any medical bills you accumulate as a result. Sometimes they will sell you and you will pay an additional premium for medical payments coverage as well. This also pays for medical bills. If your medical bills exceed one coverage or the other, you purchased extra protection through the additional coverage, but insurance companies usually do not see it that way and will set the one off from the other. They may set off the coverage from the other driver, or health insurance, or all of these. To add insult to injury, they have refused to lower their premiums after making all of these coverage ever more fantasy than reality.
The insurance industry counts on no one paying attention to these issues. In a future issue we will discuss why a clear and consistent rule requiring them to honor every coverage they have been paid for is better.