Wall Street Journal: Trading in Your Auto Insurer

Aug 24, 2012

The following article was published in the Wall Street Journal on August 24, 2012: 

Trading in Your Auto Insurer

By Karen Blumenthal


Maybe they should call them disloyalty programs.

If you have been with your auto insurer for several years, your faithfulness might be costing you a bundle.

That’s the conclusion of a new report from the Texas Office of Public Insurance Counsel, which represents consumer interests. The longer customers stay with a company, the more likely they are to pay more than they need to, said the agency, which looked at pricing and other data from large auto insurers.

The analysis found that the insurers’ risk of loss is less the longer you stay with the company, meaning you become more profitable to the company the longer you stay around. While the savings will vary from person to person, long-term customers are likely to be paying too much.

The report was meant to be a siren call to shop around for home and auto policies. Not only might consumers be paying their own insurer more, but they could be missing out because other companies often aggressively price new policies as “loss leaders”—selling them at a loss or only a small profit—to draw in new customers, the report found.

“Some people would rather have their teeth drilled than go shop for insurance,” says Deeia Beck, executive director of the Texas agency.

In a survey released this spring, Deloitte, the accounting and consulting firm, found that 30% of auto owners and 45% of homeowners had never switched insurers, with people under 35 years old twice as likely to change auto insurers as those over 50. About 60% of consumers said they never or only rarely shopped for alternatives to their auto or homeowners’ insurance.

The reason? Inertia and a general satisfaction with their current situation, Deloitte said.

Robert Hartwig, president of the Insurance Information Institute, a trade group, concedes that “an established customer tends to be more stable and can be more profitable than someone who hasn’t been there as long.” But he called the report “very naive” because it ignores other benefits of remaining with the same company for a period, such as loyalty discounts; vanishing deductibles, in which deductibles decline each year without an accident; and “accident forgiveness,” when longtime customers aren’t penalized if they are responsible for just one accident.

At State Farm, the nation’s largest auto insurer based on premiums written, a customer of six years or more won’t face a separate accident charge for the first accident. After nine years of clean driving, the customer won’t lose an accident-free discount if there is one chargeable accident.

Allstate, the second-largest auto insurer, said that while consumers should evaluate their insurance regularly, longtime customers often “are rewarded with additional savings not provided to new customers,” such as accident forgiveness and safe-driving bonuses.

Still, insurance companies are reluctant to talk about pricing, for either new or long-term customers. “Our goal is to price policies so that each driver pays the most accurate price possible based on his or her risk of being involved in an accident or having a claim,” Brittany Senary, a spokeswoman for Progressive, the fourth-biggest auto insurer, wrote in an email.

If you have been with your auto insurer for many years, you may well save a bundle by shopping around, or at least having a conversation with your insurer. Keep these steps in mind.

Make sure you’re getting all the discounts for which you qualify. Dave Phillips, a spokesman for State Farm, says customers can save 5% to 25% on their auto insurance with discounts that include insuring multiple vehicles, using State Farm for several lines of insurance, having antitheft devices, having a good driving record and having young drivers who make good grades.

Look beyond price. While the cost certainly matters, so does the claims process and the company’s financial health and reliability. Many state insurance departments list financial ratings and company complaint ratios, or the proportion of complaints to policies, for companies that do business in the state.

It isn’t worth saving money if the company doesn’t pay claims promptly or makes you jump through a lot of hoops. If your state doesn’t offer that information, look at nearby states instead.

Because prices can vary widely, check out three to four reputable companies. “Here is where an independent agent is quite valuable,” says Howard Mills, chief adviser of Deloitte’s insurance-industry group, since you can ask your agent to do the shopping for you.

If you are shopping yourself, pay close attention to all of the variables in your policy to be sure the prices are for the same services. If you have multiple policies, such as homeowners and auto or auto and renters, you should shop for them all at once, since many companies offer discounts for such bundling.

If you get a cheaper offer and are reluctant to leave your insurer, at least see if your company will match the price. The insurer may search more carefully for discounts to keep your business.

View the original article here:  http://online.wsj.com/article/SB10000872396390443713704577601622397422382.html?mod=WSJ_Autos_LS_Autos_7_2