My family’s auto insurance plan is coming up for renewal and I decided to do some comparison shopping. My parents established our plan a decade ago and my dad has been with the same company since he was 18, over 45 years. I’ve never spent much energy on the topic since it’s always just been automatically renewed and my folks handled the details.
We pay round about $1500 a year ($750 for 6 months) for 3 people with 3 cars for just liability. Seemed high to me, but I’ve heard stories of much worse prices from friends and family so I just shrugged it off. We all have spotless driving records and have never made a claim in my memory.
In today’s shopping of the “online” rate quote tools has demonstrated such a range of prices that I’m forced to ask what the hell is up. I thought I’d take a poll/ask for ideas from you all on what contributes to these vastly different prices.
From one of the big guys I was quoted a price of $1150 for 6 months for 3 people, 3 cars and full coverage. Collision, comprehensive and liability. The liability amounts are the same as they are on our existing coverage and the collision and comprehensive deductibles of $250.
From two of the new internet based companies that promote discount insurance I was quoted prices of $495 and $650 for 6 months, also with full coverage, collision, comprehensive and liability. The details were identical to the quote above.
So, the massive gulf in prices raised some eyebrows. Considering my current liability only policy with identical coverage amounts costs significantly more than full coverage from the discount guys and the big name company costs more than double the discount guys, I’m forced to ask “what am I missing?”
So, what’s the fine print here? What are the pitfalls and limitations of these 4 companies that I might not be aware of in the fine print? Why would anyone go to the big name guys if it costs nearly 3 times as much for apparently identical coverage? Sure, the commercials talk about customer service and “personal touch” but this seems totally out of bounds. Has anyone had an experience or insight here?
Insurance is a profit making enterprise. The folks who run the company can do thousands of legal things to vary the actual ammount they pay out, and how quickly they pay it. Every day of delay is a profit for the company. Every disallowed claim, even if it is subsequently appealed and paid is profit for the company.
At some point you reach a negative return on reputation, and your company goes broke if you don’t start behaving like a better business. But, that takes, well, in your case, somewhere around 45 years.
It’s only about the premiums until you need the insurance.
The whole point of the internet is to do away with brokers. A broker set us up with the liability only coverage for a huge premium. I’m not exactly seeing your point.
Sure, some companies drag their feet and some don’t. Considering I’m looking at major national corporations with millions of customers and many thousands of agents I doubt any generalizations will hold up.
Is there anything aside from “customer service” that could justify such a wide disparity in cost?
There are 2 main types of insurance companies - for profit which are AllState, Geico, etc. They are like other companies , they have stockholders and try to make money.
The other type are mutual companies which are owned by the policy holders and they do not have to make a profit for the shareholders. Examples are Liberty Mutual and State Farm.
In theory the mutual companies should be cheaper but that is not always the case.
you’re coming into the risk pool as a new entrant. for those people who have been in that pool for 15-20 years, they may not be as interested in moving (and, indeed, unaware that it could be cheaper). changing insurance companies is a bit of a pain in the ass, so while it looks like 3x as much to you (which is a bit steep), many others in that group may not realize
do you think most people routinely shop around each and every year for current insurance rates when they receive their insurance premiums?
what would you do if you take the lower rate in '11, and then they wind up jacking your rates up at a 50% greater rate than another insurer (who you presumably don’t know about)
At the insurance company I worked for, some of it was trying to pull in a certain type of driver. Our rates were pretty reasonable for people with good driving records, and not very competitive at all for people with poorer records. That ultimately lets them setup a structure with fewer agents and adjusters for a given area, and I guess that is how they wanted to run it.
Some differences:
[ul][li]Like Bijou Drains said, there are for-profit companies, that charge more to make money for their stockholders. Non-profit (customer-owned) ones should be cheaper. But there have been cases of non-profit companies charging higher prices in order to build/rebuild their reserves. (Company executives often get bonuses based on reserves ratio, so if their bad judgment has caused the reserves to drop, they may increase prices to rebuild the reserves – and to ensure their bonus. At the cost of higher prices for customer-owners.)[/li][li]Some companies sell through “Independent Agents”, while others use salaried employee agents. There is an incentive for companies to offer higher commissions to get “Independent Agents” to sell their policies. And the new discount companies have no agents at all – they sell online or over the phone. [/li][li]It’s much cheaper to keep an existing customer than to get a new one. So companies will offer long-time-customer discounts. However, these customers often don’t shop around for decades (like your father). So even with the discount, their price might still be higher than others.[/li][li]On existing customers, the company will have a better record on which to estimate the likelihood of them having a claim. So they can more accurately set a premium level that will result in profit to the company. [/li][li]Many customers like to have a local agent they can call when they have an accident. But that is expensive for the company. Some companies even have company-owned local centers where they will prepare detailed estimates of the damage, and the cost to fix it. (But these probably save them money – repair shops have to accept their estimates if they want the repair business.)[/li][li]There are various things that make customers happy (easy claims process, generous settlements, prompt payment, house-call estimates, etc.), but these increase costs to the company. Each company decides where to put itself on the continuum of most-customer-friendly to most-cost-effective. And you can generalize about companies this way – Consumer Reports frequently reports on this, based on the reported experience of thousands of consumers with claims.[/li][li]Most insurance companies actually lose money on insurance – they pay out more in claims than they take in as premiums that year. (They like it that way – looks good when they go to a state insurance commission to justify price increases.) Where they make their money in on investing the premiums you have paid over the years. Some companies are better than others at choosing where to invest their (your) money, so the can keep prices lower (or be more generous in paying claims.) This is probably the biggest factor of all.[/li][/ul]
You would think so! After all, I think I end up paying an additional $100/year in broker fees (more if I pay in installments). But yet this year I price shopped around (Mom usually pays insurance liability only as a Xmas gift on my crappy car). The only cheaper price I could find was Geico, and only by a miniscule amount, and that was assuming they didn’t notice my recent ticket (if you have the same insurer and just renew, they usually don’t bother to check). The truth is, at least where I am (NY), brokers can find obscure insurers with the lowest price. Of course, you might not have the best service, but that’s a normal tradeoff for price.
Checking online is fine if you want a name brand insurer, but if you are focused entirely on price then a broker might be the way to go.
I think there is also the if your state is no fault factor. That seems to make a big difference. And if your state is liability mandatory.
It seems to go against intuition. Going on advertising, I would guess that General is cheapest if somewhat ghetto, that Progressive is somewhat cheap, and Geico is somewhat expensive given all the ad dollars they must spend. But Geico was the cheapest for me, Progressive was pricey, and the General seemed to act like a broker, suggesting other insurers.
You should also factor in - if you are a responsible adult with a house and kids and all that shit - you might get cheaper by going with the same company for all of your insurance (home, life, auto, etc).
I’m kind of surprised that there aren’t the insurance equivalent of credit unions.
Nah. They spend lots of money on advertising, which they have to pay for by higher premiums. If they really were cheaper, they wouldn’t have much need to advertise. Nearly everyone I know who has checked Progressive has got a high quote.
That’s what mutual insurance companies are supposed to be. But some of then no longer function that way. Just like some credit unions can go bad.
Some insurers, notably Allstate and State Farm, want your whole insurance package – auto, home and life. They’ll quote a high rate for just auto insurance, but if you want an entire package, you’ll start getting discounts on each component.
But because they prefer homeowners, that’s going to necessarily throw a lot of younger car owners into the undesirable pile. Sure, they’ll sell you a policy, but they won’t even try to be competitive on price.
There are so many factors that influence premiums with a given insurer that it is difficult to discern what is affecting your quote. Driving record is certainly a biggie, along with age, sex, job, marital status, type of vehicle - and it goes on and on. First of all, whether you get a quote from a call-direct insurer or through a captive agent or a broker, the constancy of the quote is only a good as the validity of the information you have provided. The quality of the insurer - financial stability (good investing as mentioned previously) as well as good claims’ service - needs to be investigated. Check with your state Dept of Ins for stability and complaints and check with friends and neighbors for experience with claims. Agents &/or brokers might be guarding the hen house. Multiple policy discount does help (auto, homeowner, umbrella). Best thing to do is shop, shop, shop - be sure all quotes are apples - then compare the numbers and the reputations.
kunilou hit the nail on the head - put the whole pile together. My future MIL’s homeowner insurance covers my SO’s apartment (his renter’s insurance), but only because she grouped homeowner and auto together. Life is through her work.
Flood/natural disaster or boat insurance too can be added on, bringing your own package price way down.
I wouldn’t get car insurance for love or money from an internet only company. From the major ones, sure, but when you have an accident (my SO and I hit a deer, which is an act of God with only $100 deductibe, no premium raise) you absolutely want that agent getting your claim processed. And you want a real company - he has State Farm, I have Geico - that will let you go to a convenient repair or autobody shop nearby.
The weird internet ones may make you drive 2 hours to their one shop in the region.
I’ve got USAA, my fiancee’s got Erie. In both cases, we wound up sticking with something that we got started on thanks to our parents. She’s got an agent just down the street that is an agent for a number of different companies. She’s always been happy with her insurance, and I’ve always been happy with USAA (not to mention doing a number of other things with them.) I’ve run those comparisons from time to time and while sometimes they can beat what I’ve got through USAA, it’s never by all that much. Definitely not enough to switch, especially since I normally get a decent amount back at the end of the year.
My mother used to say (before we got caller ID and started screening all calls) that she’d get telemarketers trying to sell her auto insurance and as soon as she told them we had USAA, they’d say thank you and hang up.
USAA is so awesome, it even fends off telemarketers!
But yeah, I use USAA as well, and they are awesome, but then, I don’t know if that’s even an option for you (IIRC, they only do business with military, defense contractors, and dependents of the above categories.) The whole business got started by a group of Army officers who couldn’t get car insurance.
I got on USAA through my parents (usual story) and they were so totally awesome to me after my one minor accident about fifteen years ago that they earned my loyalty pretty much forever. I have my renter’s through them as well. I don’t know anything about shopping around for insurance because I never have.
Somehow these threads always turn into USAA love, don’t they?
