Military Financial Independence

This was the best conference yet!

For those who are just joining us, last month I polled people’s questions about USAA’s insurance and financial programs. I brought those issues to the Digital Military Experience with USAA’s Communications team, other program managers, and several executives.

But first, it’s time for another snark disclosure.

The Federal Trade Commission fears that I’ve lost my objectivity and become a USAA fanboi.

I’ve been a USAA member for 36 years along with my spouse (35 years) and our daughter & son-in-law (five years). We’ve spent tens of thousands of dollars on their products.

This was my sixth visit to their San Antonio offices. (USAA offered to pay for my travel but I made my own arrangements.) I joined 30 other digital influencers in a hotel with free food, extra bandwidth, and unlimited coffee. We spent over 12 hours per day interrogating their people about programs & problems, including events not yet ready for press releases.

This website earns income from USAA advertising, and I donate all of my writing revenue to military-friendly charities.

Finally, our family has invested a meaningful portion of our net worth in Warren Buffett’s Berkshire Hathaway, the parent company of the GEICO insurance corporation– but our family buys its vehicle insurance from USAA.

I’ve been financially independent for nearly 20 years, and USAA’s generous conference has not affected that. However, I’ve learned a lot about optimizing your insurance expenses, and you can save hundreds of dollars on your premiums too. You’ll find more links to money-saving insurance techniques in this post.

The big-picture answers

Let me address the broad questions first. Over 60 million Americans are eligible for USAA membership, and only about 12 million of them have signed up. (Note: just about every American is eligible to buy USAA’s mutual funds and life insurance.) USAA seems to generate intense loyalty among their military families, but I’ve also heard from many unhappy members. Some people are in both categories.

I’ve spent many hours talking with USAA’s Communications staff and the Member Advocacy team. If you’re unhappy with a claim or a financial product then I can try to help you with that too. Send me the details (NordsNords at Gmail) and we’ll ask a Communications team member to put you in touch with Member Advocacy. I can’t promise satisfaction but I can help you make sure that USAA had the chance to do the right thing.

Big-picture pricing

Insurance companies set their prices from probabilities and statistics (plus the laws of over 50 states & territories). USAA estimates the cost of the potential claims in an area, adds in the price of processing and other overhead, and quotes the premiums. Every insurance product and service offered by the company has to pay for itself— there are no competitive discounts against other insurers to grab a bigger share of their market. There are also no “performance incentives” for executives to reduce claims ratios or build a bigger profit margin.

USAA doesn’t know who’s going to file a claim, but they know that higher risks require higher premiums. The vast majority of premiums are based on ZIP codes, and many times those premiums have nothing to do with your driving record or your finances. If you happen to live in a risky area, or if you happen to own risky property, then you’re going to pay more. Otherwise it’s usually not about you– premiums go up or down as USAA adjusts to new risk data in your area.

And yes, USAA has lowered premiums for many members.

Big-picture service

USAA is a surprisingly small company, with only about 32,000 employees and a host of subcontractors. (That’s over 375 members for every employee.) They also have a unique requirement for their products and services (and our premiums): no loss leaders. Every program has to pay its way, and USAA does not subsidize products or services from other revenue. USAA is owned by us members (not by stockholders or execs) and there are no “profit centers”. Every member pays a risk-adjusted premium for claims and overhead expenses. If USAA has a profitable year (with fewer claims or cheaper processing) then they actually refund part of the premiums of military members.

This leads to some service constraints.

First, we should all use insurance for the financial catastrophes that our assets can’t cover. You buy insurance for the disasters which could destroy your lives or your wealth.

Life insurance replaces a loved one’s income (or pays some debts). Vehicle insurance includes liability protection as well as medical expenses and repairs. Most of us can’t afford to rebuild our homes after fires or flooding, and maybe not even our personal property. Umbrella liability policies protect our assets from lawsuits.

Policy service is a big part of protecting your assets. If you’re flooded out of your home by a hurricane, you don’t want to spend weeks negotiating your claim. You can’t take time off from work (or come home from deployment) to spend hours answering questions and doing paperwork.

Second, you can’t judge an insurance company’s service from the price of their premium. I can predict that the cheapest insurance premium probably comes with the least service. Otherwise you have to figure out the service by depending on third-party quality surveys and customer feedback.

You’ll almost always find an insurance company with cheaper premiums. Usually the company is taking on more risk from that loss leader in hopes of charging higher premiums from you in a year or two. It also gives the cheaper company an incentive to cut back on claims service.

If you need insurance to protect you from a disaster, then don’t go cheap. Your premium should support the potential claim service as well. This is particularly important when you’re insuring life, health, liability, and homes. For example, USAA was the first company on the scene in many neighborhoods after hurricanes Harvey and Irma.

Third, when you buy insurance to cover your vehicle or other property, consider your goals: Reimbursement for the depreciated value? Replacement value? Minimal disruption to your life by offering towing and rental vehicles? Minimum coverage required by state law? Overseas protection during travel? Are you going for high-end service or do you simply want asset protection?

If you shop for policies with low premiums, then don’t count on service. I recommend that you buy as little property insurance as you need, set the deductibles as high as you can, and file as few claims as possible. Your goal should be to self-insure whenever possible. Pay up for liability insurance but consider minimizing your vehicle’s comprehensive or collision coverage.

If you shop for service then be ready to pay for it. Review the insurer’s satisfaction surveys from its members and from third-party ratings companies. Consider a member-owned exchange instead of a publicly-listed corporation.

Finally, USAA sets its prices and services for the majority of its members. They’re going to control our expenses with cost-efficient service. This also means huge efforts at technology, automation, and some outsourcing.

USAA offers individual claims service, not individual manual underwriting. If your application requires manual underwriting for life insurance or mortgages or credit cards, then you’re probably going to be unhappy with the extra requirements. (See the paragraphs above about loss leaders and subsidies.) This is a problem if you have a thin credit file (no credit cards or no debt) or if you followed Dave Ramsey’s advice to cut up your cards and close credit accounts.

If you don’t generate much revenue (or if you file more claims than average) then you’re costing the other members money. A minimum-balance requirement can also be an issue if you’re just starting out or have few assets (beginning investors with less than the $3000 minimum for some mutual funds). The good news is that USAA has reduced some of those investing minimums to as little as $500.

Growing the membership

USAA’s advertising and public awareness is a constant sore point with a few vocal members.  “Why is the company wasting our premium dollars to subsidize the National Football League and the Army-Navy game?” Word of mouth should be good enough, right?

A few members even complain about opening membership to enlisted servicemembers, vets, & families. On the other side of the debate, some enlisted veterans refuse to patronize a company which used to be too good for them and is clearly just pandering to them for more revenue.

A few veterans with bad-paper discharges (often unjust and perhaps subject to appeal) are angry that they can’t get USAA policies because the company only insures:

“All who served honorably, and their families.”

My perspective: it’s not about scarcity but rather an attitude of abundance. It’s about all of us sharing our insurance risks across a larger group of members with good financial behavior. It’s about showing more of those 60 million potential members how to reduce their insurance premiums (and to carry their share of our expenses). Insurers want clients who pay for products and services without costing a lot in claims. When there are more members, then the corporation can invest more money in automation and streamlining to reduce its fixed expenses and spread them across more people.

USAA wants more members to help reduce our expenses, and the company’s marketing is simply going where the prospective members are already watching. USAA spent years researching and surveying the entertainment preferences of military servicemembers, veterans, and families. Football was a winner among sports (sorry, NASCAR) while television & YouTube reach millions more prospective members than any other advertising channel. (That’s a lot cheaper than magazine ads and junk mail, too.) USAA is not lining the pockets of sports leagues– NFL execs know what it means to serve, too. USAA tracks these member-acquisition expenses very closely and ensures they have a return on investment.

Meanwhile, during the Salute To Service features, a surprising number of fans are discovering that they’re eligible for membership. (I’ve personally seen this at Pro Bowl fan events— even some active-duty military didn’t know they could join USAA.) Younger members spend more on products and services while they tend to file fewer claims and exhibit better financial behavior with less claims fraud. In this case, my fellow Baby Boomers should be happy that new Millennials and Generation Z members are stepping up on our behalf. My generation’s membership has peaked and frankly it costs more money to take care of our insurance needs.

If your enlistment meant that you couldn’t join USAA before 1996… well… it’s been over 20 years. How long will you hold a grudge? When a military veteran is a USAA member then their family is also eligible for membership. Would your spouse & kids appreciate those benefits?

For those who were separated with inappropriate discharges, I hope the Department of Defense does the right thing for your appeal. Once that’s taken care of, USAA is waiting for you too.

During Digital MilEx we saw a new series of USAA videos for their YouTube channel. If you think NFL Salutes To Service are over the top then you’re going to be blown away by this new lifestyle enthusiasm. (We’ve been asked not to name the topic yet.) Many of you will appreciate what USAA has done to help honor servicemembers, and people in all generations will find that they have more in common about this honor than they realize.

I can also guarantee that you’re not going to see these topics covered by Flo, geckos, or “good hands”.

USAA corporate culture

This was my sixth Digital MilEx since 2011. For the first time ever, we attended a company-wide meeting with the CEO and other executives.  The CEO followed up with a personal brief(!) to us Digital MilEx attendees where he highlighted a few key pieces of data.

It’s flattering that we bloggers have access to the corner office. Even more critically, the employees have personal access to the executives. The CEO’s ID badge has his name on it, but his first name is in the biggest font. He’s addressed by the employees as “Stuart”, not “Mr. Parker” or business acronyms. (I also saw this with the previous CEO at earlier Digital MilExs. He’s retired now, but when he was in the job his name was still “Joe”.) The words “sir” and “ma’am” are part of Texas culture (and respect for age), not required by the chain of command. There wasn’t a necktie in sight during Digital MilEx, let alone a three-piece suit. I saw one very senior exec in old jeans and a USAA polo shirt.

I watched this team camaraderie and information sharing everywhere, not just up on the stage. I’m not looking for a job, but if I was then USAA would be the first place I’d contact.

When Stuart talked with us Digital MilEx attendees after the meeting, he mentioned that USAA has a high member satisfaction rating.  He said he was happy with the company’s general progress, and he’s watching closely as the execs work on a few particular metrics. I’ll watch those too, and I’ll report more progress next year.

Questions and complaints

I’ll address specific reader comments below (anonymously) and follow up in Facebook groups. If you’ve sent me an e-mail then I’ll answer that too. Some of you are already hearing back from USAA.

Declining service

I got a ton of comments on member service.

Amazingly, USAA’s phone calls only make up 5% of their member interactions. 95% of USAA’s members do their business digitally, and over two-thirds of that 95% are using smartphones. That’s over a billion online transactions per year without even contacting a member service representative. Good thing, too, because there are thousands of members for every rep.

We spent a couple hours at USAA’s headquarters with a dozen frontline member service representatives from all the insurance & financial departments. Part of that included a tour of their MSR Lab.

The good news is that the lab uses rapid-prototyping teams to observe how the MSRs do their jobs and to give them better tools. When you’re unhappy, the MSRs hear about it from hundreds of members and feed it right into the MSR Lab for a fix.

The lab is a small replica of USAA’s call center, with actual reps and actual member calls. The reps can volunteer to work in the lab (instead of in the main call center) for about a year. They offer feedback (“The checkboxes on our screens are too small, and it’s too easy to misroute a call”) and the lab staff can run split tests on software and other techniques. They even test-drive new desks, monitors, chairs, office layouts, and other ergonomics. (Office furniture is one of USAA’s biggest expenses.) “Rapid prototyping” means that the programmers are constantly changing the software (as quickly as a few hours) and rolling out new improvements. They don’t have to ask the CIO or the security staff for permission at every little tweak– they just make better tools and fix things.

The “other” news is that the federal and state regulations are constantly changing, and these rules limit what a rep can discuss with a member– or even see in a member’s file. An auto insurance MSR may be tracking as many as 100 claims at once, and it takes time to hop in & out of the database. A MSR in home insurance might have to transfer a question about life insurance to a different MSR, and that other MSR won’t necessarily have the member’s home-insurance conversation on their monitor.

The better news is that the MSRs have smarter knowledge tools for looking up the details. One rep said that they all have pretty much the same permissions to waive some exceptions in member service. Escalation only has to happen when a rep lacks experience in an area or the member’s needs require coordinating across multiple departments. If you have a gnarly question for a USAA phone call, let them know up front that it’s complicated or covers multiple areas so that they can escalate sooner. Both of you will be happier, too.

Last year a USAA program manager said that the phone system’s Interactive Voice Response software was so old, and its use was declining so rapidly, that for a while they actually considered eliminating it. Today they’re working on a complete replacement. IVRs are going the way of buggy whips, and they’re expensive to create, but it’s important to the members when something can’t be done online. Part of the IVR fix involves figuring out whether the question is routine, so that simpler tasks can be outsourced. Today’s IVR system routes as many as a third of USAA’s calls to (American) contractors.

Pro tip: the Member Service Lab reps said that USAA’s databases put our addresses in a half-dozen different places. When you change your mailing address in the app, it does not necessarily change your address in those other places. (They’re trying to untangle this issue, but it’s a hairball.) If you’re changing your address then send a separate e-mail or text to a member service rep and ask them to change all of your addresses so that all of your mail goes to the right place.

High interest rates (and low interest rates)

We all want higher rates on CDs and lower rates on mortgages.

You’re probably not going to get that loss-leader product from USAA. Every interest rate has to pay for itself, and if you get a higher or lower rate than the competition then it’s pulling dollars out of other members’ pockets.

What you can get from USAA is consolidation, convenience, and trust. All of your insurance and financial accounts can be in one place and handled on one mobile app. If you call from Afghanistan at 3 AM and can’t be home to meet a claims rep, then USAA understands that too. If you want to compete on loss-leader interest rates and market share then try Ally Bank, Navy Federal Credit Union, LoanDepot, and Vanguard. If you want more service and customer support then consider USAA.

USAA mortgages (or not)

Many, many readers commented that USAA’s mortgage approval process is broken. I spoke to the mortgage execs, and they’re keenly aware of the feedback. They’re building a better dashboard for all of the mortgage staff to track the processing of their applications. The status will be visible to both USAA and the member so that each side will know what the other needs and the next step.

USAA constantly reviews the performance of their contractors. I got the distinct impression that there’s going to be some turnover.

If you feel that USAA’s mortgages suck, then I have bad news for you: according to J.D. Powers, the other mortgage companies suck at least as badly.

Last March, a special J.D. Power report found that USAA had the industry’s highest mortgage satisfaction score in the industry. Over 5000 people who borrowed a mortgage or a refinance between 2015-2016 ranked USAA at 874 points (on a 1000-point scale), an improvement of over 70 points from 2015’s survey and over 40 points ahead of the average.

Business checking

USAA has perpetually and consistently frustrated entrepreneurs for years with their lack of business checking. It took us bloggers over a year just to get the execs to understand that there’s a demand for it. In 2011 (over six years ago!) during a Digital MilEx presentation, a banking exec told entrepreneurial military spouses that members just don’t appear to need it. A Facebook poll quickly updated that statement before the exec’s talk was over.

Even when business checking was added to the roadmap, it seemed to take the execs years to figure out how to put the USAA logo on it. (One senior military retiree told me that he could send an entire fleet to sea overnight but he couldn’t get USAA to offer business checking in less than three years.) We’ve found it surprisingly challenging to contact a banking exec for progress reports.

That era may finally be ending. (And this time I really mean it.) USAA’s Innovation Lab showed a prototype service that could be the right way to handle your banking from wherever you run your business. The seed planted all of those years ago is finally growing into a full program. I’ll let you know when the announcement is public.

More questions or complaints for USAA?

I’m linking this post in a number of Facebook groups and forums, and I’m answering all of the messages & e-mails. If you have more issues that you’re not ready to raise with the company yet, then feel free to comment on this post or use the “Contact me” box or e-mail NordsNords at Gmail. I can’t fix it for you but I can share the company’s perspective.

If you’re curious about USAA careers or you’re networking for more info, well, I know people who can help with that too. Many military veterans pursue financial independence because their corporate career is too stressful (for many reasons), but I know several vets & family members at USAA who may just keep showing up for work as long as their badge gets through the door. Just like their military years, they enjoy taking care of people and helping out.

Related articles:

• Your Auto Insurance Premiums Are Rising, But It’s Not Just You
• USAA’s Military Retirement Comparison Tool And The Blended Retirement System
• Lower Life Insurance Premiums From USAA
• USAA’s Digital Shift Is Saving Millions Of Dollars
• Using USAA’s Financial Readiness Score
• Reduce The Cost Of Insuring Your Teen Driver With USAA

[Nords note:  if you’re finding this post via a search engine, here’s the followup post with USAA’s responses:
USAA Answers Your Insurance And Financial Questions]

It’s almost that time of year again! The San Antonio summer is cooling off (a little) and on 19-20 September I’ll be USAA’s guest at Digital Military Experience 2017.

But first, let’s get the blogger disclaimer out of the way.

For those who haven’t read about this before, the Federal Trade Commission wants you to know (“first, foremost, and at the front of the post”) that I’m USAA’s sponsored guest. The FTC worries that you won’t be able to figure it out if they didn’t make us explain it.

In financial terms, that means 2-3 nights at a hotel with a handful of free meals. There will probably be an awesome swag bag of interesting USAA information and social-media tools. It also means that (once again) I’ll be testing the capacity of their bottomless coffee pot.

The owner of The-Military-Guide also earns revenue from the USAA advertising and special offers that you see on the site. Those ads keep the lights on and give me a place to publish answers to reader questions.

In practical terms, it means that I’ll spend two days in real life among a few dozen people with whom I spend the rest of the year chatting over the Internet. At Digital MilEx, USAA’s Communications team also gives the USAA executives some real-world interview experience by throwing them into a roomful of hypercaffeinated bloggers (with bandwidth) for brutally honest Q&A.

We might also get to test-drive a few cool products.  But I digress.

The Q&A is where you guys come in.

Questions we’ve asked USAA before

Over the last year, I’ve posted about a number of USAA initiatives and issues. If you haven’t read them yet, then here’s the links to the latest on auto insurance, life insurance, and other programs:

• Your Auto Insurance Premiums Are Rising, But It’s Not Just You
• USAA’s Military Retirement Comparison Tool And The Blended Retirement System
• Lower Life Insurance Premiums From USAA
• USAA’s Digital Shift Is Saving Millions Of Dollars
• Using USAA’s Financial Readiness Score
• Reduce The Cost Of Insuring Your Teen Driver With USAA

What questions should we ask USAA next?

Now I’d like to ask USAA about your questions and issues. Here’s an example from last year’s Digital MilEx.

If you were sitting in USAA’s conference room all day with their Communications staff and a rotating agenda of program managers and other execs… then what would you ask them?

What issues or problems have you had with insurance, investments, banking, or real estate?

What would you like to see them do differently?

USAA members are already considered “members for life”, but what would cause you to change your mind about that?

What new services or products are you seeking?

Feel free to post your commentary below, but you can also send me a private message via the site’s “Contact me” box or e-mail NordsNords at Gmail.

I’ll add your question to my (growing) list and ask the right people at USAA. I’ll keep your name out of it, and I’ll let you know who you can follow up with at USAA.

How’s your online security?

By the way, are you logging in to your USAA mobile app with “just” your four-digit PIN and your smartphone? You might want to change that practice, and I’m pretty sure USAA’s security division is already taking a hard look at it.

Last month Christine at Her Money Moves shared her experience with a hacked cell phone (which happened to also have the USAA app on it). The crooks persuaded her cell phone service provider to port her phone number over to their SIM, and then they had the opportunity to guess her PIN for her USAA app. Once they were into the app, they drained her checking & savings accounts and tried to use her credit cards. They never actually had her phone, her checkbook, or her credit cards– but they certainly did a lot of damage without them.

USAA stopped the credit-card transactions and restored her funds, of course, but let’s just say that it was a very long evening at the end of a weekend.

Let me be clear: her USAA app was not cracked by a hacker. Instead the crooks finessed the whole theft with smooth social engineering and a smart guess.

She’s boosting the security of her cell phone and changing some of the ways that she does business online. She’s still finishing the casualty procedures for dealing with ID theft, too.

I’ve taken a look at my phone & tablet. I use the regular login for the USAA app (not the “Quick Login” feature) and I have touch ID enabled as well. I’m also going to have a chat with our cell-phone service provider.

Your call to action:

After you’ve checked your mobile devices, what questions would you like me to ask USAA?

My social media has lit up this year with complaints about vehicle insurance.

It seems as if every military family who’s transferred to a new duty station has paid more money to insure the same autos and the same drivers. Even families who haven’t moved (yet) are unhappy when they renew their policies: more money for the same coverage. It’s not just geckos or good hands or eagles or good neighbors or mouthy mascots. Insurance seems to cost more no matter who’s selling it.

The trend is clear: everyone’s auto insurance premiums are rising across the industry. Many insurers are paying out more than they’re earning. They’re all trying to cut costs, but we’re going to see rising rates for a few more years.

You could shop around for the cheapest deals (again!), but this time it’s not going to be easy or happy. There are a few tactics you can apply to your insurance choices, and we’ll talk about those after diving into the problems.

First, let me establish some credibility. I’m not just re-writing press releases here, and this discussion came from months of patient persistence.

 

FTC disclosure: how bloggers get interviews

Last week I interviewed one of America’s top insurance execs. This is unusual.

I can hear the question now: “Hey, Nords, what do you get from USAA for these interviews?”

Nothing. I enjoy researching these topics, and USAA execs seem to enjoy discussing the questions.

How does one score an interview with a USAA senior exec?

• – Go to USAA conferences like Digital MilEx
• – Network with other attendees and USAA staff and ask a lot of insurance questions
• – Write a bunch of posts about insurance (and draft a book)
• – Earn a reputation for explaining complicated insurance topics with two-syllable words
• – Do social media with the USAA team at their Salute To Service sports events
• – Get an unexpected invitation to the Army-Navy game.

In other words, five years of showing up followed by an opportunity.

You may have noticed by now that I’m an insurance nerd. Despite this I’m usually able to hide it and engage in polite pop-culture discussions, but if someone brings up risks or probabilities then… there I go again.

Anyway last December I was at USAA’s brunch for the Army-Navy game in a very large room with a gigantic crowd of convivial military football fans. My daughter was with me, her spouse was joining us later, and we were talking interservice-rivalry trash hanging out with other blogger buddies. I was pretty sure nobody would want to discuss claim reserves or crash-avoidance tech. I just nodded politely at the chatter and tried not to shiver in the Baltimore winter.

Much to my surprise, Wayne Peacock approached me. I’ve talked with him at several USAA conferences over the last five years, and now he’s the President of their Property and Casualty Insurance Group. As we chatted, he said he wanted to analyze the industry’s recent challenges. Why, thank goodness!, er, I mean, sure, I could do that.

Unfortunately we were expected to participate in football-related socializing, and we had to shelve the insurance discussion for later. He’s been busier than usual over the last few months (grappling with rising costs) while I talked with other experts on the P&C team. I did my homework on the rest of the industry and their trends, and then last week Wayne and I nerded out on the topic.

The FTC wants me to let you know that no money changed hands and I was encouraged to ask Wayne anything. I’ve insured our cars with USAA for over 35 years, but we have no other USAA insurance or financial products. I own Berkshire Hathaway stock (the parent corporation of GEICO) but even their gecko discount didn’t beat USAA’s rates.

If you want to learn how to network with USAA, please contact me and I’ll help you get started.

Enough disclaimers. Let’s nerd out on insurance.

 

Vehicle insurance problems

Auto insurance has been heading into trouble for decades, but the trends just accelerated during the last few years.

Wayne said that it started in late 2014, yet it took a while for the insurers to compare notes and realize that this is an industry-wide problem. This is one of the worst P&C years that the industry has ever experienced. Vehicle insurance claims were so bad in 2015 that USAA paid out $103 for every $100 that they received in premiums— and they have some of the lowest operating expenses in the business. In 2016, net losses rose almost 18% and members’ auto policy dividends dropped over 46%.

Ironically, the biggest insurance “problem” is that injury rates are rising faster than deaths. Both are getting worse, but vehicles (and trauma centers) are keeping more people alive after the accident.  That costs more in medical treatment, rehabilitation, and disability.

Legislation has improved vehicle safety for decades, and that’s boosting our human survival rates. Unfortunately we’re footing the safety bill by paying more for the auto. If there’s an accident then the insurance companies are paying a lot more for the repairs, and that expense is gradually circling back to the drivers as higher premiums.

The best example is “crumple zones”. This Insurance Institute crash-test video is a stark demonstration of how today’s vehicles absorb more of the collision energy up front instead of transferring it to the passenger compartment. The 1959 Bel-Air would simply be hauled off to the shredder while the 2009 Malibu would still have some parts to contribute to the junkyard. At lower speeds, however, crumple zones still enthusiastically do their job (even at 5 MPH in the parking lot). That’s a lot of internal damage, and it’s much more likely that your vehicle will need extensive repairs or even be declared a total loss.

Fuel-economy legislation and auto manufacturers are hurting insurers, too, because today’s frames and bodies use exotic mixes of aluminum, carbon fiber, and lots of plastic. The result is lightweight transportation and higher average gas mileage— until something goes wrong.

Wayne mentioned a recent USAA claim on a Ford F150, one of America’s most widely sold pickup trucks. Older models have steel wheel wells and beds, so if a tire blows out then the damage is limited to the tire and the wheel. Modern F150s have aluminum wheel wells and beds where a steel-belted radial tire can hurt a lot more. Wayne said that a newer F150’s blown rear tire sent spinning steel belts of shredding destruction through the entire wheel well, and then chewed up the truck bed all the way to the back bumper. Who wants to pay thousands of dollars to repair a tire blowout?!?

Labor costs are rising almost as fast as materials. Today’s bumpers and fenders are filled with electronics for backup cameras, proximity sensors, and computer controls. Vehicle repairs now involve more college-educated technicians than wrench-turning mechanics, and the diagnosis alone can be hundreds of dollars.

Enough about the vehicles; you get the idea. Now let’s talk about the drivers.

 

Driver insurance problems

The Great Recession was a good time for vehicle insurers, although admittedly only for those insurance employees who kept their jobs.

The national Cash For Clunkers program cleared a lot of junk off the highways, and unemployment “excused” more drivers from the rush-hour commutes. Oil prices were screaming over $140/barrel and seemed sure to hit $200 any day, which caused even more employed drivers to opt for public transport, carpools, and bicycles. Sure, unemployed drivers were canceling their policies, but claims expenses were dropping a lot faster than premium income.

Compare that era to the current booming economy and collapsing oil prices. The result is more cars on the road driving even more miles. It’s risen steadily for more than two years. Today more people are having still more accidents while driving yet still even more miles.

There’s a new and very disturbing trend among these rising numbers: distracted driving. More drivers are “visibly manipulating handheld devices” than ever before and the numbers are still rising. Wayne says that USAA’s fastest-growing category of accidents involves a vehicle drifting across the centerline and causing a collision without the brakes even being applied. Too many drivers are tweaking dashboard menus and videos, squinting at maps on their smartphones, or ambushed by texts making urgent noises while displaying their content in small fonts.

Just taking your eyes off the road for five seconds at 55 MPH is the equivalent of driving down a football field with your eyes closed. And I’m pretty sure you Mainland drivers are all moving faster than 55 MPH.

 

The cost of the problem (and the price we pay)

Adding up all of these issues during the last 800 words:

The National Safety Council estimates that the cost of deaths, injuries and property damage attributed to crashes in 2016 totaled $432.5 billion, up 12 percent from 2015.

That’s nearly $1350 per year for every person in America, licensed or not. I don’t know about your vehicle insurance rates, but I’m paying less than $150 per year for mine. The crash expenses are not affordable, let alone sustainable.

 

All right, expenses are rising. Now what?

As grim as the situation may seem, you can change your behavior to control your insurance expenses. Wayne has a number of constructive suggestions with USAA initiatives, but first let me jump on my podium for a personal polemic.

Millennials are now America’s largest age group, and they’ve already found the solution: drive less, and maybe don’t drive at all. Even though Millennials put themselves on report for the worst driver behavior, the Millennials and Gen Z have the lowest percentage of drivers.

Every reader of the Mr. Money Mustache blog & forum just coughed out a “Well, duh.”

Boomers and GenXers will be the drivers who bear the brunt of auto insurance costs. Better download that Uber app.

I’m not simply suggesting that you should drag your beach cruiser out of the garage and… well… actually I am suggesting exactly that. (Perhaps a modern mountain bike, bought used via Craigslist.) We could all stand to walk a little more, too, and live closer to things instead of expanding our suburban sprawl. Maybe we should plan our errands better for shorter trips, and do more online shopping. Or maybe just buy less stuff altogether.

Yeah, I know. “Nice try, Nords.” Hills. Weather. Sweat. Blisters. Aching knees. Work schedules. Shower facilities. Kid safety. Busy families. Too many errands, not enough time.

Commuting expenses are among the largest obstacles to financial independence. (It’s not the $5 latté.) The sooner you optimize those solutions then the faster you’ll boost your savings rate and reach your financial freedom.

All right, I’m done preaching. Let’s bring Wayne back in for more “practical” solutions. But remember, the less you drive then the less you pay… and not just for insurance.

 

Insurance solutions

The first answer is fixing the insurance system. Wayne says that U.S. insurers have to deal with 54 different state & territorial jurisdictions just to set up the rulebook. (USAA also covers military drivers in dozens of foreign countries.) Some states allow setting premiums by demographics (especially age) and experience while a few insist on charging only by driving record. The minimum requirements vary by state, not by the local cost of living or population density (or the number of Ferraris per square mile).

The biggest barrier to running an insurance business is figuring out the rules. The biggest administrative impact on reducing rates would be a national standard based on the driver’s record, their type of vehicle, and the number of miles they drive.

I’m not holding my breath for a national standard, but Wayne is now in a position of considerable influence to help the industry update the government rules. USAA has already helped do this with life insurance, and the vehicle insurance problems are even worse.

Next, USAA is working on repairing the repairs. Wayne admits that this is the hardest piece of the puzzle but it has the greatest potential for savings. One of the most vocal customer insurance complaints (even at USAA) is the lengthy, frustrating, and expensive repair process. Wayne says that USAA has to keep insisting on exceptional quality service and “get it right”. They’re constantly working with different repair businesses on better ways to restore vehicles to their original resale value.

USAA (and the entire insurance industry) is very interested in repair tech. Ford is experimenting with 3D printed parts, but I’m even more interested in DIY repairs. Imagine if you could print out those annoying plastic trim pieces in exactly the original shape and color instead of searching all over the Internet for a supplier with the right stock.

The industry’s other solution to repairs is: no repairs. In more cases than ever, it’s cheaper to declare the vehicle a total loss and reimburse the owner.

Totaling is a controversial and emotional practice for many owners who insist that they’re not getting the full resale value. If you’re in that situation then I’d encourage you to hire your own claims adjuster to negotiate with your insurer, and see whether it’s worth the expense. Personally, I’d recommend accepting the insurer’s valuation and taking the money (with minimal hassle). You didn’t have to negotiate with a dealer, or list the vehicle for sale, or handle all the sketchy wannabe buyers and their dubious offers.

Speaking of the claims process, USAA is still streamlining it. Today after an accident you can take smartphone photos of your vehicle damage, upload them when you file a claim on the app, and maybe even have payment by the time you get home. Our Ohana Nords hit & run was nearly two years ago, and filing an accident report with the USAA app took less than 10 minutes. It took an hour for our local police to do the same paperwork, and I mean literal paperwork. I had to scan the police report to upload it to USAA’s website.

Wayne says that USAA is also pushing other hardware solutions. They’re heavily promoting crash-avoidance technology to reduce accident rates and deaths (and incidentally avoid the entire repair process). Auto manufacturers are implementing these new systems faster than they rolled out airbags: it’s the biggest improvement in 20 years for the biggest potential impact.

While crash avoidance is becoming mainstream, USAA is also working on telematics and a smartphone pilot for assessing your driver behavior. Everyone thinks they’re an above-average driver, but collecting your own data will reduce your delusions.

Finally, Wayne pointed out that insurance is just one aspect of the total expense of ownership. The less you spend on the car (let alone the insurance), then the lower the financial burden of driving. For starters, USAA’s Auto Circle is now three years better than ever. It begins with their new-car buying service, where over a million USAA members have saved more than $2 billion over retail price. It has a powerful search engine to help you find the vehicle you need (not just your fantasy ride) and it can quote your insurance expenses before you buy.

They’ve greatly expanded their used-car buying service. You can let USAA work out the price with one of their certified dealers, or you can sell your own vehicle to the dealer with minimal haggling. I’m not a fan of financing new cars when you can save up the cash for a used one, but USAA is also happy to lend you the money. They’re a tad more understanding when their military members take their cars overseas, even if the loan isn’t paid off.

Finally, Wayne pointed out that most drivers choose their insurance by price– but they can’t tell whether that’s worth the cost savings until they need customer service. Before you go for the cheap policy, check customer satisfaction ratings and consider how USAA can support the unique aspects of military service.

 

But what can I do now?

Maybe that last section was good news for car buyers, but how else can you control your rising insurance rates? What if your premiums are going up despite having no accidents or tickets?

The most important action you can take is talking with a member service rep. Make sure they have the right info on your vehicle, and then check your policy details. Safety features? Anti-theft gear? Collision avoidance systems?

How much vehicle do you need? Are you really willing to work that many additional years of your life energy to have the biggest and most powerful pickup in the parking lot? Or could you stop competing with the Joneses and use an old minivan or sedan as merely safe family transport?

If you’re stationed in a new location, do you still need all of your old coverage? Roadside assistance? Towing? Rental car replacement?

How’s your neighborhood? Do you still need maximum coverage for property damage if you’re among cornfields instead of downtown? Is your vehicle parked indoors or on the street? How’s the winter weather?

Can you consolidate all of your policies with the same company for a bulk discount on home, personal property, auto, liability, and life insurance?

What about collision and comprehensive insurance? One thumbrule claims that when the premium is 10% of the vehicle’s resale value then you should drop them both. My spouse and I only buy used vehicles over five years old– and preferably with a few dings & scratches. We like lower prices instead of the cosmetics and we haven’t carried collision or comprehensive for over three decades. The compounded savings add up to a small fleet of good used cars– and the investments accelerated our financial independence.

If you must carry those two types of insurance, then what about your deductibles? How much could you save by raising them, and (here’s the important part) how long would that savings take to rebuild your vehicle replacement fund?

Do you still need a vehicle for every single driver in your household? This is especially important for families with teen drivers. If you have more drivers than cars then you may get an “occasional driver” discount. By the way, those young adults can enjoy lower insurance rates if they take driver education training and maintain good grades.

Now that our daughter has left the nest, I’m still trying to level up to the status of one-car family. These days we only need 1.1 vehicles (with a roof rack for longboards), so our second car does most of its duty as a spare-parts locker and a laundry rack. Ride-sharing is widespread on our little island, and maybe we can spend less on chauffeurs than we spend on insurance premiums.

What’s your claim history? If you have a record of claiming fender-benders then your rates will magically elevate. Insurers share a national database of claims history, too, so you can’t avoid this expense by jumping to a different company. You’ll enjoy a brief fling with them before they update your history and boost your premiums at renewal time.

In fact, if insurers are prone to totaling a vehicle after an accident then maybe you don’t want to file a claim at all. You’d have to report the accident to your insurer (especially if you’re not at fault) but you don’t have to repair the vehicle to showroom condition. Once you’ve had the vehicle checked for safe operation then you could pay out of pocket for essential repairs (especially if you have a high deductible) or do your own cosmetic repair.

Finally, focus on the total cost of ownership. If you’re buying quality used cars and driving them for 15-20 years then your insurance premiums will flatten out. Stop paying for the latest & greatest, and put your values in your investments instead of in your transport.

Have your premiums jumped up this year? How are you controlling them?