Is Zipcar offering too little insurance?

Ron Lieber in the New York Times says Zipcar is underinsuring its customers:

Today, customers who are 21 or older have $300,000 of liability coverageper accident. That would have to cover mangled limbs, brain damage, pain and suffering and anything else that might befall all the people that a Zipcar vehicle mowed down or plowed into.

Drivers under 21 get much less coverage. Zipcar would have to pay a lot of money to provide $300,000 in coverage to less-experienced college-age drivers, and it figures that most of its users in this age group are covered by their parents’ auto policies anyway. So Zipcar does as little as possible here, offering each state’s minimum requirements and no more….

Zipcar members who do not read the disclosures on the company’s Web site would never know about any of this. And many of them don’t, since the company has persisted with the claim elsewhere on its site that its insurance is “comprehensive.”

Wouldn’t a lawyer for an injured person or the family of an accident victim go after Zipcar first, since that’s where the money is? They could try, but a federal law shields rental car companies in many instances, and Zipcar has already cited it in at least one legal skirmish over someone injured in an accident involving a Zipcar.

Just in case, however, Zipcar still insures itself. In a filing accompanying its initial public offering, the company noted that in the event that it was responsible for an accident, say because it failed to maintain its cars, it had coverage up to $5 million in the United States. That is more than 16 times the maximum protection that it offers its members.

I have no position on how much liability insurance a driver ought to have.  But every advice on this I’ve ever read agrees that the amount of insurance you want goes up with your assets.  It would be truly weird if Zipcar didn’t insure itself against much, much greater losses than its customers do.

According to a Zipcar spokeswoman, Colleen McCormick, the $300,000 in coverage has been adequate for every accident since it began operations. She added that more than half of accidents involve only the Zipcar vehicle itself. When another car is involved, 93 percent of the accidents have resulted in claims of less than $10,000, and 99.3 percent result in claims of less than $50,000.

That makes the company pretty lucky. Sure, accidents with injuries are rare, but what happens when they do occur? According to ISO, a data provider to insurance companies, about 2 percent of bodily injury liability insurance claims in the United States are for more than $300,000; in the State of New York, it’s 3 percent.

For brain damage in a vehicular accident, the median jury award in 2008, the most recent year for which data was available, was $289,793, according to Jury Verdict Research, which compiles the data and publishes it. For leg injuries, the median was $192,775.

Not one but two devious coordinate changes here.  Zipcar says that claims of more than $50,000 make up .7% of half of all claims, so about .4%.  Lieber argues that this makes them very lucky:  3% of claims in New York State are for more than $300,000.  But look closely — the second number only applies to claims involving bodily injury — obviously these will be the most expensive class.  How frequent are bodily injury claims?  Lieber gives no hint.  But he does go on, rather slyly in my view, to narrow his focus to an even smaller class of claims, those involving brain injuries — now the median size of claim is already close to $300K.  But how many bodily injuries involve brain injuries?  Again, we’re in the dark.

I heartily endorse the genre of business piece that uses numbers as part of an argument.  But you need to include all the relevant numbers!

One number that’s plainly important:  how often do Zipcar customers end up facing liabilities that exceed what they’re insured for?  Credit to Lieber for answering this one — it’s “never.”

“Never in 10 million drives has a single person had to come out of pocket” for a liability claim, said Rob Weisberg, Zipcar’s chief marketing officer. “Our coverage is two times our next-largest competitor, and our coverage is greater than most Americans have who insure their personally owned vehicles.”

That doesn’t make those Americans adequately covered. And the logic here strikes me as backward. Insurance is supposed to be for things that would be financially catastrophic. To sell protection against a three-figure fee while leaving members exposed to a seven-figure judgment doesn’t make much sense.

So if you’re a Zipcar member, as I am, now you know what the worst case looks like. Still feeling comfortable with the company’s coverage?

To sum up:  Zipcar is mistreating its customers by failing to offer a service that most of them don’t want, and which, if offered, would not have been used in the company’s entire history.

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4 thoughts on “Is Zipcar offering too little insurance?

  1. Anonymous says:

    Zipcar is mistreating its customers by failing to offer a service that most of them don’t want, and which, if offered, would not have been used in the company’s entire history.

    To be fair, you could rephrase this as follows. Zipcar is mistreating its customers by failing to offer a service that most of them don’t realize they might need, and which ought to be very cheap to provide if it is indeed never needed in practice.

  2. I like Anonymous’s reformulation.

  3. fergal says:

    Yeah, “never in 10 millions drives”. What’s that, one day of driving in California? Even if it’s ten days, it’s still not much data if you’re trying to find the extremes.

  4. The level of insurance required by many states really is really quite minimal, so I’d definitely worry if I was under 21 and driving a Zipcar. However, I believe that 300k per accident is pretty high end in terms of auto insurance — I think the maximum coverage offered by my mainline insurer is 500k per accident. To get more protection than that (which, as JSE indicates, you should if you have significant assets), you need to get umbrella coverage. For the reasons Anonymous and Matt give, that’s usually quite cheap, e.g. a few hundred dollars a year for $1M+ of coverage.

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