What I Believe

I believe in being a good steward of the opportunities we have with the people we care for and the gifts and talents we’ve either been born with or have worked for.

I believe noble work involves investing in your craft so that you know what you’re talking about, acting for the benefit of others, and having a fierce affection and loyalty to your clients and friends.

I believe most people want their time & money management to be in alignment with their personal values, and that contentment comes from having this feeling.

I believe that worry is a roadblock to happiness and inhibits good decisions and slows good behaviors.

I believe that knowing what you want can liberate capacity and apply what’s already good to go make it better.

I believe that people who are grateful, gracious, and giving are more successful than people who are cynical, contentious, and controlling.

Photo: Safety Bay, Flathead Lake, MT

4 Most Important Questions

Here are the 4 most important questions families should be asking themselves when it comes to their insurance:

  1. What are the losses that could cause the most damage to our financial plan?
  2. If those losses happened, how much money would we need to keep the financial plan in working order?
  3. Of those most serious losses, which ones would we be willing to buy insurance for?
  4. Of those that are insurable, what are our expectations of the insurance product and the insurance company in how they both perform after a loss?

If you have answers to these questions, and you can find a reliable expert who’s able to engage in a conversation about these and help you find the solution that fits, you stand a good chance of making an ultimate decision about your insurance that matches your personal values, and a greater likelihood that future claims will meet your expectations.

Don’t fall into the trap of listening to insurance people talk about product features, customer-service satisfaction scores, “bundling” and other gimmicks, and false promises of premium savings.  You can get all of those things and still have insurance that has zero chance of actually getting you what you need.  Have high expectations, have a strong sense of your need, and demand your insurance partner be all-in on what matters to you.

Photo: Rachael McGraw – Maui, Hawaii

A Comment About Worry

I believe that worry is an inhibitor to general happiness.  Worrying takes effort and attention away from the discovery of mission and purpose, and it is the enemy of intentional living.  I know this because I worry.  A lot.

But I also know that when liberated from worry, I make better decisions.  And when I make better decisions, I worry less.  So I work hard to focus myself on the controllable and the activities that are tied to making decisions to fit with my values and my wishes.  Because when I feel I’ve done the good-decision-making part, I’ve not got much more to do.

So I sometimes go looking for decisions to make, especially in a stressful time, as the antidote to worry.  It’s not always easy, but it can be a learned habit when coupled with a desire and the right attitude.  I believe it hinges on three key ingredients:

  1. Know what you are talking about.  If you don’t know it, go learn it.  Worrying while ignorant is the worst place to be, so go learn what you need to learn so you can decide how to get out of that place.
  2. Act.  Make a commitment to perform and do whatever it takes to get yourself out of the situations you’re worrying about.  It’ll happen a thousand times faster than if you wait for someone else to act for you.
  3. Grow in your personal relationships.  One person worrying is lonely.  Sharing worries and asking for help means you’ve got a team.

I do what I do because I believe there’s value in helping people worry less about some of the financial stresses in life.  And our core business value is Know | Act | Grow because it’s how we think you can get to our motto:  Less Worry | More Happy

Photo:  Rachael McGraw – Joshua Tree, CA

My Personal Insurance Priorities

I consider my insurance the defense of my financial plan.  I think of the ways my financial plan could be derailed, and then I look for the ones that would have the greatest impact and I buy insurance to fund the consequence of that loss.  So here are my insurance priorities (in order):

  1. Income – my future plans depend on me making an income, so I am most concerned about replacing it if I can’t work.  So I have really good life insurance and disability insurance (an individual policy that I control, NOT a group/employer plan).
  2. Health – The most frustrating insurance I own is my health insurance.  Expensive, confusing, and limited in coverage, I still consider this the second most important policy I own.
  3. Lawsuit – I used to manage the handling and resolution of tort-related lawsuits, so I am well-qualified to say that they are expensive, long, stressful, and affect every part of your life.  So I have significant protection against allegations of negligence in the form of an excess liability (umbrella) policy.  It also protects me the same way if someone injures me or my family (excess 3rd-party liability).  I also hold two very large liability policies for my business, primarily so that lawsuits don’t interfere with priority #1 above – keeping the income coming.
  4. Real Estate – Second to my business, real estate is a large single-asset holding and if something happened to it, I’d want it restored back to the way (and value) it was.  I have a full replacement guarantee on my home with no reconstruction limit, and I have unlimited coverage for additional living expenses for the time it’s likely to take to get it rebuilt.

When I design my own insurance, I keep these four priorities in the forefront and everything else matters very little to me.  I keep high deductibles because I’d rather fund my smaller losses with my own $1 than pay an insurance company $1.30 to do what I can do.  I choose my insurance company based on 1) the quality of the contract, 2) their reputation and passion toward claim resolution, and 3) their track record of consistency across all aspects of their company in doing what they say they will do.

Auto Premiums Still Rising

Auto insurance premiums have jumped significantly, and that trend will continue.  For probably quite awhile.  And probably in large numbers.

The insurance industry has credible evidence to support an increase in premiums.  The biggest impact is that cars are so much more expensive to repair these days.  It’s the gadgetry, most of which is meant to keep us safer.  Just like crumple zones many years ago helped keep passengers safe, innovations in technology that help to reduce the frequency and severity of passenger injuries are pricey to fix.

Many cars these days have automated systems that sense traffic around them and can drive, stop, and change lanes without driver input.  But when those sensors are damaged in an accident, the liability for correctly replacing and reprogramming those systems are extremely high because so much depends on getting it done right.  And when there’s liability for doing it wrong, there are high costs associated (mainly to buy insurance for the inevitable lawsuit down the road).

We had a client with front-bumper damage to a Tesla which in the “old days” (2 years ago) probably would’ve cost about $10,000 to fix, but they had the entire $95,000 car totaled because the sensor that read for forward obstacles was damaged and no one would/could repair it.  And since the whole concept of insurance is that neighbors pay for their peers’ losses, all insurance premiums have increased substantially to account for these realities.

This feels especially acute because of the rapid rise in consumer acceptance of this technology.  This hasn’t been a slow boil, but a rapid social change and it’s likely here to stay.  Even as driverless cars begin to enter the market, there will be accidents, and we’ll see auto premiums for those who drive their own cars have to respond.  If there are fewer car owners, there will be fewer people to whom the risk can be spread, leaving the supply of insurance-loss funders (policyholders) in shorter supply.  This will mean even higher premiums.

Manage to the result

When deciding what to do with your insurance, it helps if you think down the road to the day in the future when you have a loss and need a claim adjusted.  Having that end-result in mind should help you decide what to do.

There are some objective criteria you’ll want to touch on, namely:

  • Do you want to manage a home loss within a finite window of policy limits, or do you want to be worry-free with a guarantee of full replacement?
  • Do you want to leave the calculation of your car’s value for after the loss, or do you want to know ahead of time exactly how much you’ll be paid if it’s totaled?
  • Are you fine with insuring some valuables for only certain losses, or do you want your special property covered for almost any damage or loss?
  • Do you want to be forced to rebuild your home in order to get full benefits, or might you like to take the cash and either do it yourself, or move elsewhere?

And then there are some more qualitative results you’ll want to consider, namely:

  • How quickly will you want to be called back, given answers, have estimates completed, bills paid, etc.?
  • Are you willing to “work” and apply your own efforts to get your claim resolved, or do you just want things handled and resolved and leave you out of it?
  • Will you cooperate and understand claim cost-cutting initiatives, or will that upset you and leave you feeling “nickeled and dimed”?

It’s unfortunate that our industry doesn’t do a good job of convincing people that insurance isn’t a commodity.  That’s probably because the ones that do the most advertising/convincing wouldn’t attract many customers if they tried to compete on quality.  But we see everyday that entry-level insurance usually gets entry-level claims results, either because the design was no good in the first place, or because the adage that you get what you pay for is actually often true.  So don’t believe the hype – be clear in your expectations and then seek the design and execution of your insurance to answer to them.

Photo:  Amber McGraw – Flathead Lake, MT

Forecast & Trends, 2018

We believe 2018 will see a continuation of the significant and industry-wide auto-insurance premium increases that began a little more than a year ago.  More expensive repair work to more intelligently-wired cars is one of the largest drivers of higher claim costs, as are recent large-scale weather events across the U.S. (Hurricane Harvey destroyed 1 million cars storm-wide).  There’s also been an unfortunate uptick in roadway fatalities after years of decline, some are saying due to more distracted driving while using phones and in-car technology.  And medical costs continue their climb.  But in our opinion, the industry’s failure to predict the rise in auto repair costs is the biggest cause for the ongoing search for rate increases to fix poor underwriting performance.  We think that will continue for a couple more years.

Home insurance premiums as a whole haven’t seen material increases over expected inflationary pressures, but wildfires and severe storms present a rising concern as underwriters try to determine if we’ve been hit with some recent bad luck, or if we’re in this pattern for awhile.  An immediate response to the rise of wildfires in populated areas is a diminishing interest in providing coverage in areas at risk for wildfire.  We’re already seeing some insurance companies making wholesale statements like “in area X, no more home insurance will be offered due to wildfire concerns”.  This may seem reasonable until that “area X” keeps expanding until it reaches where you live, or if insurance companies begin cancelling policies.

A few industry leaders are investing in new things, and we’ll likely see continued experimentation in pay-by-mile insurance, in shared insurance coverage with autonomous car manufacturers, in finding solutions for VRBO/Airbnb owners, drone insurance, and new ways to interface with prospective clients and active clients.  What is not likely is the industry going back to the days of training, developing, and supporting experts to provide counsel, advice, and service to customers.  We believe insurance companies will become more like faraway manufacturers and processors, and consumers will then search for outsourced 3rd parties for things like advice, special care, or advocacy.

Be Engaged

I always ask new clients how involved they were in the design of their old insurance portfolio, and 99% of the time they something like, “I wasn’t.  The agent just told me what I should have and I bought it because they seemed really nice”.

I believe a better way is to be engaged in the design of your own insurance.  There’s very little subjectivity in how your insurance will perform after a loss, so the outcome of your future insurance claim begins the moment you decide on what to purchase.

I also believe that no one cares as much about your insurance meeting your expectations as you do, so your first priority is to find counsel from someone who can draw-out a detailing of your standards, expectations, attitudes, and tolerances.

I find that one useful tool is answering among the set of mutually-exclusive questions below.  It doesn’t replace a full insurance audit or inventory, but my clients say it’s a great way to start a discussion about what really matters to them in protecting their financial plans for the future.

Choices

Insurance Premiums, Explained

How an insurance company determines your specific premium is a complex set of algorithms that only a few people at the insurance company even know the formula to.  Everything from credit, education, years since you last switched insurance companies, the highest liability limits you’ve selected in the recent past, whether you own a home, where you live (in addition to the cars you drive, and whether you’ve had tickets or claims) can all be factors.

But the general concept of how insurance premiums are calculated is pretty simple and it should give you some insight into how you can design your total risk-management plan to try and maximize your position when it comes to choosing among your insurance options.

Keep in mind that insurance is a contractual promise to finance your loss according to the policy contract you’ve designed and selected.  In exchange for that promise of future loss-funding, you and all your neighbors pay premiums in advance so there’s enough money in the hands of the insurance company to pay for individual losses, pay their administration costs, and pay their shareholders any profits.

It’s important to know that the biggest risk to an insurance company isn’t failing to predict the one rare huge loss, it’s failing to predict the frequency with which losses occur.  That’s why after you have a claim, your premiums go up – it isn’t to make their money back, it’s because the #1 predictor of a future loss is having a loss.  Nobody likes to hear that, but it’s math and a statistically-provable fact.

It also partly explains why there have been huge increases to auto premiums across the industry.  The rapid inclusion of in-car sensors, electronics, and driving aids has shot the cost of repairing even small bumper damage through the roof.  It’s not just that an individual car is now more expensive to repair, it’s the failure of the insurance companies to predict how quickly consumers adopted such features into their cars.  Now there are huge losses and deficiencies in premium across the board and insurance companies are trying to make-up for lost time.  We think that will continue.

On the other hand, losses with a very low probability of occurring, even if the consequence of such loss is high (like a very serious auto accident), is often manageable when the insurance company can calculate a longer-term likelihood of collecting enough premium before that kind of a loss occurs.  It’s why every additional million dollars of excess-liability insurance gets cheaper than the million that came before it.

So in the calculation of everyone’s insurance, there’s an innate bias against things that happen a lot.  Damage to your bumper, theft of jewelry, broken windows, and water damage to your home are common examples, and insuring against these losses is the most expensive insurance that you buy.  And while not enjoyable, none of those are probably going to be life-altering.

In contrast, if you were responsible for an auto accident that left someone seriously injured, or your dog bit a child, or you were responsible for a serious mistake made by your own child, having to pay to resolve that loss (and the probable lawsuit) could ruin your financial position.  And insuring against these losses is the least expensive insurance you buy relative to the benefit provided by the policy contract.

The benefit of knowing this is to create your expectations on how you want to allocate your insurance dollar.  In our opinion, the best use of your premium is to buy loss-funding for things you could never pay for yourself (lawsuits, serious injuries, etc), and the worst use of your premium is to buy loss-funding for things that happen a lot.  So we advocate setting a high priority on umbrella policies, life insurance, and disability insurance and using high deductibles to keep small and frequent claims away from the insurance company in exchange for lower premiums.

Premiums explained