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Ticket-proof car insurance: What's the catch?

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CarInsurance.com

Are American teens the worst-trained drivers in the world?

Erie Insurance is pitching a solution to the insurance Catch-22: You buy a policy for peace of mind but worry constantly over whether your car insurance rates will go up.

Erie now sells an endorsement -- an add-on to your auto policy -- guaranteeing your rate won't change unless you move, add a driver or change cars.

For 99 percent of Erie drivers, that amounts to auto insurance that's not only inflation-proof, but ticket- and accident-proof as well. So far, the company has canceled only 1 percent of drivers with the Rate Lock option.

There are limits, of course.

"Your policy is always subject to an underwriting review," says Ann Zaprazny, senior vice president, East Region, Erie Insurance.

Translation: Erie will drop you if you have an awful driving record. Surprisingly few people get dropped, though, largely because of Erie's rigorous screening upfront.

If you're about to compare insurance companies, you'll find niche options like Rate Lock that aim to cultivate the loyalty of low-risk, preferred drivers.

How bad can you be?

Cutting drivers some slack is not a novel concept. Rules vary by company, but several large insurers -- Allstate is one -- offer an "accident-forgiveness" promise: Your rates won't rise, even if you're the one at fault, after your first accident on the policy.

Otherwise, insurers typically raise rates 40 percent over the base (that's the basic cost of coverage before accounting for a customer's specific risks and variables) -- or more -- after even a single auto insurance accident claim.

The Rate Lock option was first rolled out two years ago in West Virginia and is now available in Washington, D.C., Illinois, Indiana, Pennsylvania, Ohio, Tennessee, Virginia, and Wisconsin and is awaiting state approval in North Carolina, Maryland and New York.

Erie says its Rate Lock endorsement goes beyond forgiveness."So many folks pay their insurance for 10 years, then they have a minor fender-bender and they get a big increase. With Rate Lock, we won't punish you," says Zaprazny. Erie's even got a website called DontPunishMe.com.

Exactly how bad can you be before getting the boot? Zaprazny outlines the limits:

  • A citation for driving under the influence (DUI) triggers an "underwriting review," meaning that the company examines your record with an eye to dropping you;
  • Two at-fault accidents (where you're to blame) within three years will cause Erie to reconsider;
  • Having your license suspended in court is another possible trigger for cancellation;
  • Totaling your car, even if it's just your first accident, eliminates you from the program because you'll need a new car, which bumps you out of the program.

In practice, however, Erie's canceled just 1 percent of Rate Lock policyholders -- identical to its cancellation rate overall.

What's rate stability worth?

The exact price of a Rate Lock option is hard to pin down. About 75 percent of customers' rates stay the same or drop, the company says. The remaining 25 percent see increases of $25 to $100 -- sometimes more. As a percentage of the annual total cost, increases are "negligible," Zaprazny says.

Rates are highly individual because Erie's rate-setting software values 700 variables, including driving habits, age, gender, your car and your location. "You could live in a rural ZIP code; I could live in a ZIP code with high traffic. You could have a better driving record and cleaner accident history than mine," Zaprazny says.

To cruise at one rate for as long as your car holds out, wringing the absolute most from Rate Lock, you'd have to be a reasonably good driver operating the same vehicle and living a stable life -- no moves, no new cars, no youngsters getting a driver's license.

Are you Erie material?

The question is: Can you qualify? Any Erie auto-insurance customer can choose Rate-Lock. But not everyone gets into Erie.

The 86-year-old company, the 13th-largest writer of auto insurance in the U.S., makes money focusing on "preferred" drivers. That means it's good at screening out high-risk drivers.

You must live in a state where it's offered, of course. But to qualify you also must have:

  • no more than one at-fault accident in the last three years or;
  • no major moving violations in the past three years. (Example: a speeding ticket 20 mph over the limit, or a violation that forces a license suspension.)

A stable customer base is an insurer's Holy Grail: It helps keep costs low by reducing the labor and paperwork involved in screening and enrolling new customers. Overall, 90 percent of Erie's 4 million auto policyholders renew annually.

Rate Lock helps Erie contain costs by locking in customer loyalty. "Since its introduction, what we're seeing is that retention of new customers who purchase Rate Lock is stronger than new customers who do not buy Rate Lock," says Zaprazny.

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