According to US Department of Commerce motor vehicle accident statistics, approximately 10.8 million motor vehicle accidents occurred on US roads in 2009. Considering how often car accidents occur, it is no surprise that auto insurance is a major expense for even the safest drivers. But what has always surprised me, no matter whether you are considered a good driver or higher risk driver by auto insurance companies, is some companies charge more than twice as much as other companies for the same coverage. This is why it’s so important to check the rates of many auto insurance companies, so you can find the companies that have the best rates for you. This is also why many auto insurance companies can honestly claim to save people hundreds of dollars a year. But there are not a few companies with low rates for everyone. You have to shop to find the auto insurance company with the best rates for you. It’s not unusual to find big price differences among companies for other types of insurance, too, like home and life insurance.
However, with auto insurance, I have always wondered why major companies, competing to have a good price for the best drivers, charge very different rates, when these companies use the same considerations to determine the lowest risk drivers. If you are married, in your thirties, own a home, have two late model cars, have great credit, had no claims in the last 5 years, and all the drivers in your household have clean driving records, every auto insurance company selling preferred or standard auto insurance wants your business. So why do some of these major companies charge so much more than other companies? Why would two or more households, having all the same qualities I listed, find a different group of auto insurance companies have the best rates for each household? Shouldn’t the same group of companies have the best rates for all the customers with the same characteristics? I will answer these questions in this blog post, and tell you why a part of the problem is consumer behavior, and what people can do to influence over-priced auto insurance companies to lower their rates.
Although auto insurance companies like & hate the same things, there are so many different variables used in establishing rates, each customer practically pays a unique price. For example, people with great, fair, or bad credit are not simply broken down into three rating categories. Some auto insurance companies have 15 or more levels of insurance score rating factors based on credit. One company may be more competitive if you have a teen driver, but will have the worst rates if the teen has a ticket. Move to another zip code, and another company has a much better rate. Some companies have affiliation discounts, which qualifies you for lower rates than other people with your same risk profile. For example, you may be able to find much better rates than what Geico quotes you, but if you or you spouse join the military, start working for the government, or buy Berkshire Hathaway (Geico’s parent company) stock, Geico may now have the best rates for you. Join Costco, and Ameriprise may have much lower auto insurance rates for you. Trade in your car for a new BMW, and another company may be able to offer you rates well below the company you have now. Even the auto insurance company you have now, and how long you have been insured with that company, can make a big difference in which company will have a low rate for you.
One of the factors all auto insurance companies use to determine your Comprehensive & Collision rates is the year, make, and model of your car. If you are looking for a car that may be less expensive to insure, here are the Highway Loss Data Institute data for auto insurance claims by make & model.
Several times in my career, I’ve had customers call and ask why their neighbor, insured with the same company and having the same risk characteristics, pays a much higher or lower rate. Each auto insurance company files their rates with the state department of insurance, so there is never a random difference in rates, but there are so many reasons rates can vary among customers, it can be very difficult to isolate the difference. The bottom line is you can’t rely on the companies having competitive rates for other people, having competitive rates for you.
Still, I’m over 30 years old, have a clean driving record, and good credit. Some companies have good auto insurance rates for me, but some companies quote me so much more, it seems they don’t want my business, like I’m an inexperienced driver under 21, with an at-fault accident on my driving record. I know from experience, anyone shopping for auto insurance will see big price differences among companies. Why is this the case?
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Other than the many variables influencing auto insurance rates, many insurance companies compete on alleged quality and reputation, instead of price. This would be okay, if higher priced companies had a real qualitative difference, rather than using the smoke & mirrors of advertising. If you use my website to find the leading auto insurance companies and get price quotes from them, look at the rates, and then compare them to the customer satisfaction ratings and complaint statistics in my insurance company reviews linked from my home page. You will see there is no connection between price and quality of service.
Some companies with higher ratings and better complaint records will have competitive rates for you, and some companies wanting to charge you a lot more, may have mediocre ratings and complaint records. This is why I recommend shopping first based on coverage and price, then evaluate the customer service of the lower priced companies. You may decide you want to choose an auto insurance company based on the highest customer satisfaction ratings, and pay more for it, if it is not among the lower priced companies, but you won’t make the mistake of thinking paying more for auto insurance assures good service.
There are many well-known auto insurance companies getting away with having expensive rates for their customers. How can they do this and stay in business? Many people pay too much for their insurance because they never shop for better rates, or if they do shop, they don’t check the rates of enough companies. Many people renew their auto insurance year after year, thinking it’s not worth their time to shop. After all, unless you have a claim or a problem, who wants to think about insurance? Insurance companies take advantage of customer inertia & apathy to not shop with other companies, by having uncompetitive rates for many of their customers. About 2/3 of customers renew their insurance with the same company. Many companies don’t compete on rates over the long run, because they know they don’t have to do it to keep your business. After large rate increases, I was trained to contact customers and explain reputable companies need to maintain their ability to pay claims, and rate increases are necessary to continue to meet our obligations to our customers. This is partially true, but the purpose of rate increases is also to increase company profitability. Don’t buy the BS a company needs to charge you twice as much as other companies with the same financial strength rating.
What can you do to fight over-priced auto insurance? If everyone followed my philosophy of shopping with all the leading auto insurance companies each year (or every 2 or 3 years, if you are unwilling to shop each year), and change to other reputable companies, if they offer a better price for the same coverage, all auto insurance companies would be forced to compete on price, if they don’t want to lose a lot of customers, and stay in business. Unfortunately, everyone won’t do as I advise. But that does not mean you can’t follow my advice, and make sure you choose the best insurance company for you, based on coverage, service and price. I made my website & blog to give you the information to help you save money and make better insurance choices.
Do you think your auto insurance is too expensive? Tell me about it. Comment on my facebook page. If you have questions and would like my help, you can reach me at help@smartshopyourcarinsurance.com. Follow me on Twitter for important insurance consumer news & new blog entries at CarInsWatch.