Every insurance company has a target demographic. For Geico, it is government employees. For State Farm, it is farmers. For Liberty Mutual, it appears to be people who are economically illiterate. Last year, the company released a series of nine advertisements, most of which commit economic fallacies. At the time, I examined and debunked them. Some of those have been phased out, while others remain. They have also made four more advertisements, all of which commit more fallacies. Let us analyze each one and find the fallacies therein.

Blah Blah Blah (Coverage Compass)

A woman says, “Your car insurance policy is 22 pages long. Did you read every word? No. Only lawyers do that. So when you got rear-ended and you needed a tow, your insurance company told you to look at page 5 on your policy. Did it say, ‘Great news, you’re covered!’ on page 5? No. It said, ‘Blah blah blah blah blah blah blah…’”

Reading and familiarizing oneself with the policy that one has purchased should be expected, as it is the car insurance customer’s responsibility to know what is covered and what is not. A person who does not read the fine print before agreeing to legal terms has no one to blame but oneself.

Mistake (New Car Replacement)

A man says, “Your insurance company won’t replace the full value of your totaled new car. The guy says, ‘You picked the wrong insurance plan.’ No, I picked the wrong insurance company.”

This man picked the wrong economics textbook, assuming he has ever read one at all. The reason that many plans cover the current value of a car rather than the original value is that depreciation occurs over time. Wear and tear begins as soon as a car is used for the first time, meaning that a car’s value begins its descent from new car price to scrap metal price as soon as it is driven for the first time. It makes no sense to insure anything for more than it is worth, as this only incentivizes the owner to destroy the insured object and file an insurance claim on it.

Of course, there is nothing inherently wrong with a New Car Replacement policy, but it will cost more, and for good reason. When the potential payout for a claim increases and all else is held constant, the insurance rate must increase in kind so that the insurance company can remain profitable. There is also nothing inherently wrong with an insurance company which chooses not to offer such a policy, so the man’s statement about picking the wrong insurance company is only a matter of subjective preference.

Perfect (Accident Forgiveness)

A man and woman present a dialogue.

Man: You both have a perfect driving record.

Woman: Perfect.

Man: No tickets, no accidents.

Woman: That is, until one of you clips a food truck, ruining your perfect record.

Man: Yeah.

Woman: Now, you would think your insurance company would cut you some slack, right?

Man: No, your insurance rates go through the roof. Your perfect record doesn’t get you anything.

Woman: Anything.

Man: Perfect!

Of course their perfect record does not get them anything, for it is not perfect anymore. Damaging other vehicles makes a driver a greater liability for an insurance company because it makes the insurance company pay out claims to the owners of those other vehicles. As past behavior is a useful predictor of future behavior, an insurance company raises rates on drivers who have had accidents recently in anticipation of having to pay more claims caused by those drivers in the future.

While there is nothing inherently wrong with an Accident Forgiveness policy that does not increase rates for the first accident, it will cost more, and for good reason. The money required to keep the insurance company afloat must come from somewhere, and it can only come from raising rates on accident-free drivers, raising rates on drivers with two or more accidents, lowering claim payouts, or some combination of the aforementioned.

Wife’s Car (New Car Replacement)

A man says, “You’re late for work. You grab your 10 gallon jug of coffee and back out of the garage, right into your wife’s car, with your wife watching. She forgives you, eventually. Your insurance company, not so much. They say you only have their basic policy. Don’t basic policies cover basic accidents? ‘Of course,’ they say. ‘As long as you pay extra for it.’”

Again, it is the car insurance customer’s responsibility to know what is covered and what is not. If the policy says that the circumstances are not covered, then it is up to the customer to either deal with such a mistake out of pocket or pay extra for a plan that covers such a mistake. And perhaps such a driver should not have a 10 gallon jug of coffee, as that level of caffeine would certainly impair one’s driving abilities.

Conclusion

This set of advertisements is appealing to the economic illiteracy and sense of entitlement of the general population, especially younger people. Unfortunately, because economic illiteracy is so widespread, Liberty Mutual seems to have a winning marketing strategy.

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