Are Allstate's new auto insurance promises too good to be true?

Accident forgiveness, auto replacement value available, for a price

Thursday, November 17, 2005



By Patricia Sabatini, Pittsburgh Post-Gazette



Worried that your auto insurance bill will zoom if you file an accident claim? What about demolishing your brand new car and discovering you are thousands of dollars in the hole because your insurance covers only the car's depreciated value?



Allstate Insurance wants to calm your fears. Pennsylvania's third largest auto insurer has been plastering billboards and blanketing the airwaves with promises of accident forgiveness, meaning the company won't raise your rates in an at-fault accident, plus a new car if yours is wrecked.



Should you bite?



As you might expect, the goodies will cost you, so you'll want to read the fine print to know exactly what you are buying.



The offerings are part of Allstate's new "your choice auto" program available in Pennsylvania and 20 other states. The Northbrook, Ill.-based insurer expects the program to be rolled out nationwide, excluding California, by the end of April.



Allstate said it developed the program in response to surveys that showed customers wanted more flexibility in the type of coverage they buy, leading it to develop a range of premium options.



Under the most expensive level of coverage, which costs an average of about 15 percent more than a standard policy, an Allstate customer can have multiple accidents forgiven and, for safe driving, earn money off the collision deductible and premium payments.



For about 7 percent more than standard coverage, a customer can have one accident forgiven every three years and earn safe-driving credits toward the deductible.



The forgiveness feature has been popular with parents of teenage drivers, Allstate spokesman George Nolan said, in part because the program lets customers buy the coverage without the typical waiting period required by other insurers.



For example, State Farm, the state's largest auto insurer, requires a clean driving record of at least three years before ignoring one accident. No. 2 Erie Insurance offers the same break as State Farm and, for customers who go 15 years without an accident, promises never to impose an accident surcharge.



Under Allstate's standard policy, motorists generally can have one accident waived after five years of safe driving.



The replacement value coverage doesn't come with the new premium packages but must be added on for an additional 3 percent charge. The replacement coverage can not be tacked on to standard coverage.



Upgrading from a standard policy to the top premium package plus replacement coverage would cost a customer roughly 18 percent more, or an additional $180 on a $1,000 premium.



Under the replacement option, if you wreck your new car, the company will replace it with a new one of the same make and model, or, if that's not available, a new vehicle of similar size and class.



Your vehicle is considered "new" for only the first three years. In addition, you must request the extra coverage within one year of buying the vehicle. If you add the option when your car is 11 months old, for example, you would have two years and one month left of eligible coverage.



Most insurers will reimburse policyholders for only the depreciated, or book value, of a totaled car. For example, your 3-year-old Honda Accord may be worth only $18,000 even though you bought it for $25,000. If you demolished it, you'd have to make up the rest if you wanted a new car.



Neither State Farm nor Erie offers replacement value coverage.



A spokesman for Erie said the insurer was considering offering it, but for only those cars less than a year old.



Bob Hunter, director of insurance for the Consumer Federation of America, said he liked the idea of giving consumers more options, but said he wasn't sure Allstate's replacement coverage was worth the extra cost, especially since it is available to only those customers who buy the more expensive premium packages.



"Personally, I wouldn't pay for it," Mr. Hunter said.



"If I have a new car, and I have an accident a week later, most likely they are going to get me a new car anyway. They are supposed to make you whole. I would hold out and say I want a new car."



Mr. Hunter said the best way for consumers to cut their auto insurance bills was to compare quotes from a number of insurers because prices vary widely.



In Allegheny County, average premiums per vehicle for a sample driver choosing the "limited tort" option, which limits the right to sue for pain and suffering in an accident, range from $542 to $3,063 a year at Allstate, and from $762 to $1,801 at State Farm, according to the Pennsylvania Insurance Department Web site, www.insurance.state.pa.us. (The range takes into account different rating territories within the county.)



At Geico, an insurer that sells policies directly instead of through agents, average premiums under the limited tort option in Allegheny County range from $500 to $1,055.



"Shopping is very important in the auto insurance business," Mr. Hunter said. "There usually is a big difference between companies."