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I recently have seen an Allstate commercial touting it’s policy of reimbursing its insured’s 5% of their premium every 6 months when they are not involved in an accident. Sounds pretty good, right? Wrong.

Allstate’s policy creates a financial disincentive for its insured’s to report wrecks. In other words, if an Allstate insured rear-ends somebody, and especially if the damage does not appear too great, it doesn’t take too big a stretch of the imagination to conclude that the Allstate insured may not be too interested in reporting the wreck to Allstate. After all, he is looking forward to getting 5% of his premium back.

However, failing to report a wreck timely to your insurance company in and of itself can be grounds for your insurer to deny the claim based on your failure to cooperate. In every policy that I have ever reviewed, an insured has a "duty to cooperate" with the insurer in the investigation and litigation of the claim. This duty starts at the very beginning when an insured has a duty to seasonably notify the insurer whenever any event, like a wreck, which might trigger coverage should occur. Accordingly, if you are in a wreck and you fail to report it to your insurer, you run the risk that your insurer simply will deny your claim and refuse to defend you.

Of course, besides the insured that is hurt by having their claim denied, the other party that is hurt is the other involved driver. In the example above, the victim of the rear-end collision. While this person would still have a claim against the individual that hit them, collecting from an uninsured party is often an impossibility, particularly when that party has no assets.

And, who gains in this scenario? Why, of course, the insurance company, in this case Allstate. Think about it, the insurance company accepts premiums in exchange for providing insurance. However, when their insured violates the policy by failing to report an accident, then the insurance company is in a position to deny benefits on a claim on which it has taken premiums. But, of course, Allstate would say "we don’t encourage people not to report claims – we just say we’ll give them a premium refund if they don’t have an accident." Not having an accident and not reporting an accident are very different things, but if an insurance company doesn’t get notice of an accident, the effect to the insurance company is exactly the same – there is no claim to investigate and pay. So, this policy is a "win-win" for the insurance company, less reported claims, and in those cases where a claim is not reported until much later (probably by the injured party), a built in reason to deny the claim.

Call me cynical but that’s how I see this advertising campaign.


  1. This is a very good point. They want to sell the protection and than do what ever it takes to prevent it's use.

  2. Gravatar for Andy Stone

    How is this any different from the threat that exists with every insurer that reporting a minor accident will result in a rate hike? It seems to me that Allstate is simply using a "carrot" (the promise of a rate reduction for 0 accidents) rather than a "stick" (the threat of a rate hike in the event of an accident). Also, you state that "failing to report a wreck timely to your insurance company in and of itself can be grounds for your insurer to deny the claim based on your failure to cooperate." Deny what claim? Isn't your whole premise here that the insured is not making any claim? If no claim is made, there is no claim to deny.

  3. Gravatar for Danny Feldman

    To a certain extent, you are right - many people are reluctant to report what they "perceive" to be a minor claim at the time for fear of a future rate hike. However, when Allstate actually talks about sending you money back I believe it heightens the financial incentive to not report an accident.

    As to your second point - assume what you perceive to be a minor wreck. You don't report it. Then several months later, it turns out that the person you rear-ended ends up having neck surgery because of what you thought was a minor wreck. Although this is not a common occurrence, it does happen, more than many people think. The injured party then makes a claim against you, and you in turn then file with Allstate. However, several months have gone by since this wreck occurred. Allstate has been deprived of its opportunity to investigate the wreck, speak to witnesses, take pictures of the wrecked vehicles etc. You, have breached your insurance contract with Allstate in which you agree to put them on notice of a potential claim as soon as possible after the accident. But, you didn't do this because you wanted to get your 5% premium refund.

    This is the fundamental problem I see with Allstate charging premiums for insurance coverage and then creating financial incentives for its insureds not to report claims and thereby, in some cases, depriving themselves of the very thing that they purchased - insurance. Of course, assume that the resulting claim is a serious one and you can see how penny wise and pound foolish not reporting an accident is - but, people will do it. Especially when there is a financial incentive for doing so.

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