Auto Club Cites Soaring Claims, Revamps Staff, Cuts Sales to Bad Risks
Officials of the Automobile Club of Southern California said Friday that the cost of claims on its auto insurance policies has been mounting rapidly, forcing the company to reduce sales to bad risks and revamp its sales agent system to save money.
The Auto Club is currently laying off a small number of agents, while transferring scores more as it intentionally reduces its sales to people who have citations or accidents on their records, club officials said Friday.
The executives noted that the number of accidents reported to the company actually declined slightly so far this year--by 0.9%--due in part to new sales policies implemented last summer that resulted in a higher percentage of policyholders with good driving records.
But, at the same time, they said, there has been a dramatic increase of 21.9% in the average cost of claims and a rise in the number of injuries reported per accident.
They suggested that the company may be falling victim to a “popular psychology” of making bigger claims against insurers.
Thomas V. McKernan Jr., Auto Club vice president for finance and administration, said: “We think there’s more fraud. A kind of ‘social inflation’ is going on. People pay high premiums, they have a fender-bender, and now, they say, ‘We’re going to get the money back.’ ”
Trends Raise Concerns
Both he and Auto Club Vice President Terrence E. Sullivan expressed concern at trends making it increasingly difficult for the Auto Club to make ends meet. They said the Auto Club may be forced into even more restrictive sales guidelines.
Not only are car repair costs shooting up, they said, but in the first five months of 1988, average medical payment claims increased over the previous year from $1,406 to $1,593, or about 15%, and uninsured motorist claims were up from an average $4,599 last year to $5,174 this year, an increase of about 20%.
Also, average property damage liability claims are up from an average $1,282 last year to $1,472 this year, or about 13%, and bodily injury liability claims are averaging $7,350 this year as against $6,442 last year, up nearly 21%.
Inflation accounts for little of this, they said. Most of it, McKernan suggested, stems from a public desire to make higher claims as popular feeling about high insurance prices grows.
The Auto Club, one of the top three sellers of auto insurance in the Los Angeles-Orange counties metropolitan area, is the largest seller in minority areas on the south and Eastside of Los Angeles.
Its new sales policies, while spread out to all areas, may have the effect of forcing more people into the assigned risk plan, or conceivably lead more to ignore state requirements that they carry auto insurance if they drive.
Employees Express Concern
Sullivan and McKernan agreed to be interviewed after two disgruntled employees in the sales force called The Times to complain that layoffs and changes in the sales department had put the company into “turmoil.”
The vice presidents denied there is turmoil, but they acknowledged there is some unhappiness over recent cutbacks in the sales force from 567 people to 353. Only about 50 of the people who have lost sales or sales-related jobs are being laid off, they said.
Some of those on the sales force do not like the fact that they have now been placed on a salary schedule, rather than being paid commissions on sales, despite the fact that average income of the remaining agents has not been affected, they said.
But the vice presidents said the larger problem is that a 12% increase in premiums in January has not kept pace with rising claims costs.
They said the company may have to further tighten its underwriting standards to decline to insure even more people who have questionable driving records.
