What’s in an insurance rate?
From cavemen, to the Gecko, to Salt N’ Peppa, there may be more iterations of insurance giant GEICO’s ubiquitous advertising promise of “15 minutes can save you 15%” than any other major brand with similar media saturation. In 2013 GEICO spent $1.2 billion on ads according to the trade magazine Insurance Business America, which also reported that the figure represented about 6% of the dollars paid by customers in premiums. To put it plainly, If you’re a GEICO customer (like I was for over a decade) then you’re helping pay the Gecko’s salary. Overall, insurance companies spend $6 billion every year on TV, radio, and social media ads—more than any other US industry.
If you’ve been a loyal customer of your current insurance company, then your brand loyalty may not be working in your favor, and could even be working to your detriment. Last year, Consumer Reports shed light on a little-known tactic from a small group of insurers called a “loyalty penalty”. That’s right, loyal customers are sometimes penalized by hundreds of dollars simply for sticking with a company they trust. Other companies use Big Data to see if you’ll tolerate subtly rising rates.
Indeed, insurance is a strange product—in an ideal world; a person who is reasonably safe (and lucky) could end up spending hundreds of thousands of dollars over the years and never once use the product for which they paid premiums every month. So how do consumers go about getting the best deal? I thought I would serve as a guinea pig.
Know what you currently have
Insurance premium rates are determined by several factors, some of which, like deductible amounts and level and types of coverage, you have control over. On the other hand there are things like your age, driving history, and which city and state you call home that are factors you can’t easily control or at all. Before looking into other companies, get a good sense of what you have. Some people make the mistake of looking solely at premium prices without giving any thought to what kind of coverage they need, or how big (or small) they need to make their deductible. Coverage is also split between liability coverage—the limit of which will determine how much the insurance company can pay for things like injuries or damage to other people’s property—and personal property coverage—the limit of which will determine how much will be paid for damage to your own personal property.
If you own your car outright, you’ll have a choice between a mixture of liability and collision or what’s called comprehensive coverage. If you make payments or you’re leasing your vehicle, you will most likely be required to carry comprehensive coverage.
Before you call or visit websites to get quotes, look up your current coverage to make sure you’re getting an apples-to-apples comparison. What might seem like a better deal might just be worse coverage.
Thanks to information provided by Consumer Reports in their illuminating insurance article referenced above, I knew they recommended a few companies above others, so I started there. One of the companies referenced, USAA, is only available to active duty, retired, or honorably discharged U.S. military personnel and their families. Unfortunately, I did not meet their criteria. The other two companies I checked out are fairly well known, and spend plenty of their customers’ premium payments on TV ads (clearly there’s no escaping that inconvenient truth).
The first company I went to was Amica. They had me fill out a pretty quick quote online and eventually followed up with an email and a phone call. Unfortunately, it just wasn’t cheaper than what I had at the time. Even shifting to a higher deductible didn’t make much difference.
The second company I went to was State Farm. They called me just a few minutes after getting their quote. The agent was friendly, knowledgeable, and walked me through the entire process. I felt much better about the entire process than I had in more than ten years of being a GEICO policyholder. The agent explained some of the various discounts and other methods for saving me money, including a program State Farm has to track policyholders in order to reward safe drivers. Although it would have saved a few dollars a month, my family and I determined it wasn’t for us (we’re safe drivers, I swear! But it felt a tad too Big Brother-y for our tastes). I did end up getting more coverage for our liability than before, as I didn’t even realize I currently just had the minimum.
Next up, my agent took on my homeowners. After going through a fairly in-depth questionnaire on things ranging from the value of my home, to what kind of materials it’s constructed with, the agent asked me what I was currently paying. She was floored. “Holy smokes! That’s a lot,” is what she actually said. Why was I overpaying for insurance? It turned out I was (way) over-covered. She ended up saving me nearly $1,000 when all was said and done.
Be aware of what you’re getting
This isn’t presented as an endorsement, or conversely, a condemnation, of any particular company. Ultimately, it’s the underwriters who decide which people belong in which risk pool, with whichever rate they determine makes sense from an actuarial standpoint. It’s up to you to do the leg work and figure out which company is going to get you the best deal—and the best value. It’s not the craziest thing in the world to take a look at some different companies once a year or so. You might not save $1,000, but even a few hundred might make a difference for your budget.
Ultimately, as long as you’re buying insurance based on what they’re actually offering you, and not just loyalty to a brand based on history or hilarious commercials, you’ll be in a good place.