For every single driver, car insurance is a legally-obligated necessity. Yet just exactly what you’re paying for and how you will be protected by your policy can be a complex and confounding question. And you’re not alone. In fact, this common confusion lead to the recently published, two-year long, investigative report by Consumer Reports titled “The Truth About Car Insurance.” The published results are illuminating for those who believe they have little choice over how much they must pay to insure a vehicle.
The facts, straight from the mouth of Norma Garcia, senior attorney and manager of the financial services program at Consumers Union (the policy and advocacy arm of Consumer Reports): “Pricing transparency is one of the most powerful money-saving tools consumers can have when it comes to car insurance.”
Below, we break down the top reasons shopping around will provide the pricing transparency you need to ensure the best deal.
1. Different Insurers Charge (Very) Different Rates
Because the industry is regulated at the state level, policy pricing can swing wildly from low to high, depending on a surprising amount of variables. It may seem fair to assume that your car insurance rates are determined by your driving habits, but pricing formulas take into account much more than your accident history. Insurers determine individual rates based on confidential scoring models that, in addition to driving history and vehicle information, take into account a wide range of personal details from the basics (age, gender, zip code) to wider socioeconomic factors like employment status, education levels, credit scores, and home ownership. And every insurer uses their own unique pricing formulas. What exactly does all this mean? It’s simple, really: to find the most beneficial deal for your individual profile, you should compare quotes from as many national and regional insurers as possible.
2. Price Optimization is an Unfortunate Reality
Behind your premium may be an equation that goes beyond your risk profile, and looks instead at your price sensitivity, i.e. how much you’re willing to shell out. The practice is called price optimization, and unless you live in California, Florida, Indiana, Maryland, Ohio, Vermont, or Washington— where price optimization has been outlawed, the chances are good that insurance companies are using statistical models to size up if you’ll balk at a price hike or barely register it. if you haven’t moved recently, changed jobs, or had other changing life events, theoretically you’re less likely to switch carriers, even if your rates go up. And just how much of an increase insurance companies think you’ll agree to is determined by carefully-guarded algorithms.
3. Loyalty Doesn’t Always Pay
Having fun or not, time certainly does fly. This simple fact is why a six-month policy can be up for renewal before you’ve even gotten around to the last season of The Walking Dead queued up in your Netflix account. And that tendency for time to whip by with nary a warning is also why you can wake up one day and realize you’ve been with the same insurer for years without giving it much thought. Consumers are routinely told that staying with the same company for a long time can be lucrative, whether through rewards or loyalty discounts. But when it comes to car insurance, you might actually incur what Consumer Reports termed a “loyalty penalty.”
Findings from J.D. Power and Associates’ 2014 U.S. Insurance Shopping Study echo the sentiment: “The longer customers had been with their previous insurer, the greater the savings when they switched carriers, probably because the old policy came with annual premium increases.” Another powerful and potentially painful fact? According to J.D. Power, customers who switch insurance carriers save around $300 on average. That’s a rather big chunk of change.
4. A Little Incentive Goes a Long Way
Despite annual price increases, you might still be fond of your current insurer. When it comes to finding the right car insurance company, we know a company’s financial strength, claims handling, and customer service are just as important as price. But even if you’ve already found a good match, the simple act of shopping around for quotes from other carriers can prompt your current insurer to lower the price of your policy. Obtaining lower quotes a few weeks before your renewal time arrives will make you well-armed to ask for a rate reduction.
5. Things Change — And That Can Be Great for Your Wallet
Renewing your car insurance policy isn’t just a mundane task, it’s a chance to puff up your pocketbook. Think of renewing a policy as a mini new year’s (sans resolutions), that is: as a time to reflect on the past year (or six months, if that’s your bag). Has your daily commute shortened? Maybe due to landing a new job, joining a carpool, or from finally striking out on your own with a home-based business? Have you recently retired, gotten married, or bought a home? If so (well, first: congrats!) then that means your coverage needs and risk profile have changed. A lot can happen between when you first purchase a policy and its renewal period, and those ch-ch-changes can make a substantial difference in your premium.
So now you know the why but need to know the how? The Zebra is the most comprehensive real-time car insurance comparison platform in the country. In only 60 seconds you can compare rates from more than 200 companies to find the very best deal, tailored specifically to you.