Car Insurance Premiums -Behind the Scene
The most recent edition of Consumer Reports magazine contained a really good article about car insurance. In the article, the author discusses that the magazine spent 2 years reviewing over 2 billion car insurance quotes from 700 companies in every United States zip code. Their mission was to gain a better understanding as to how the companies were coming up with their premiums. What the articles concludes is quite revealing and we thought about including several of the more surprising facts.
1) Your credit rating is one of the biggest factors in your premium even compared to your driving history. For example, the article pointed out that the person with poor credit will pay much more in premiums than even a person with a DUI on their driving record so long as the person with the DUI has good credit. The article actually used a Florida example and showed how a driver with excellent credit would pay $1409.00 per year for insurance but a person with poor credit would be charged $3,826.00. The Florida resident with excellent credit even with a DUI would still pay less than the perfect driver with poor credit with a $2,274.00 premium. So, the article concluded that the historic pre-occupation with a person’s driving record is less of a factor these days and credit history is more important to the algorithms used by the car insurance companies to calculate premiums. On average a poor credit score raised premiums by $1301.00. So, next time you go car insurance shopping, check your credit report to make sure it is accurate.
2) Allstate and Progressive were most expensive carriers. These two were followed closely by Gieco. So, the carriers that advertise the most about being competitive on pricing seem to be the most expensive. The average annual premium for Allstate was $1,570. The most inexpensive in the article was USAA with an average annual premium of $817.00. These were based on new customers with excellent credit and clean driving histories.
3)Insurance companies also try and predict if their policyholder is the type that will compare shop each year or not. If the company determines that you are not the type of compare shop (for instance you have been loyal customer for many years) they will be more likely to make small increases to your premiums. This practice is called price optimization.
4) 30 Million drivers do not have insurance despite being required by law in 49 states (New Hampshire does not have such a law). This means that purchasing uninsured motorist coverage is very important. Our firm has consistently written and preached on this issue and will again reaffirm that advice as this article points out again its necessity. Further, the article also noted that that UM coverage added only between $10 and $200 per year to the annual premium.
5) When shopping for car insurance the article advised to start with Amica, State Farm and USAA. These were the three lowest priced companies. The author also pointed out that there is a web site that makes this comparison shopping a bit easier. The site is called thezebra.com and it provides custom premium estimates from 18 to 35 insurers per state.
6)As your credit report changes, so should your insurance policy. The article recommends that you should review your auto policy every couple of years making sure that you are getting the best deal and to also make companies aware that they could lose you as a customer.
For more information on this article see consumerreports.org