Money For Nothing? Consumers Ignoring Car Insurance Ads, Survey Says

Despite the auto insurance industry spending record amounts of money on advertising designed to get motorists to switch carriers – or at the least compare their rates against those of the competition – it’s not enough to counteract consumers’ innate inertia.

A recent survey conducted for insuranceQuotes.com determined that the average U.S. driver has not changed insurance companies in 12 years, with about a quarter of them staying with the same carrier for more than 16 years. Thirty percent of drivers say they compare quotes every few years, while a stunning 36 percent never bother to look for the best rates.

And it’s not like motorists are missing the message. According to a study released by SNL Financial, Allstate spent a whopping $937.3 million in advertising to promote both the parent company and its Esurance division. Meanwhile, State Farm budgeted $843.9 million for advertising in 2014, with, as noted in a separate report by Kantar Media, GEICO dropping $1.43 million in ad dollars last year.
While the lack of apparent bang for the buck is obviously bad for multibillion-dollar insurance companies, it’s even worse for consumers, whose lethargy can be costing them considerable cash.

Despite car insurance companies spending billions of dollars on advertising, relatively few motorists actually switch carriers or even bother to compare rates. (David Adame/AP Images for Progressive Insurance Help Flo Try-Outs)

“Many people make the mistake of shopping only when they move or buy a new car, but data shows that rates fluctuate even when you haven’t had any major life changes,” says Laura Adams, insuranceQuotes.com‘s senior analyst. “If you haven’t shopped for auto insurance since the ’90s, it’s probably safe to say that you’re not getting the best deal.”

The survey found that millennials and senior citizens are the least likely among all demographic groups to shop around for auto insurance. What’s more, 46 percent of motorists in the U.S. confessed to not knowing they can change their auto insurance carriers at any time. “Even if you paid for six months or a year of insurance upfront, the company will reimburse you if you choose to switch,” explains Adams.

To be sure, rates for a given driver can vary greatly from one carrier to another based on a wide range of personal circumstances, and it often comes down to risk management. Some companies may offer lower rates for single drivers in urban areas, while others might prefer to cover suburban families who own multiple cars and a house; some companies readily accept drivers with spotty driving records, while others might price them beyond reason – or reject them altogether – to maintain a pool of safe and sound policyholders.

According to the annual Insurance Shopping Study conducted by JD Power, drivers who switched insurers said they saved an average of $388 on annual premiums this year. Experts caution, however, that premium costs should be only one element consumers should consider when comparing car insurance carriers. “When looking exclusively at price, consumers may find the grass is not always greener,” says Valerie Monet, director of the insurance practice at J.D. Power. “Many customers are obtaining quotes and gathering information on insurer websites or through aggregators, but the day-to-day interactions they have with their insurer, especially if they have to file a claim, will be the ultimate moment of truth for the customer.”

To that end, the JD Power study determined that Erie Insurance provides the most satisfying shopping experience among auto insurers, with a score of 870 out of a perfect 1,000, followed by Ameriprise and The Hartford in a tie for second place (869), with CSAA Insurance Group in fourth (861) and Amica Mutual in fifth (850). In terms of claims satisfaction, a separate JD Power report determined that Amica Mutual ranks highest in auto claims satisfaction with an index score of 900, followed by Auto-Owners Insurance (879), State Farm (869), American Family (868), Auto Club of Southern California Insurance Group (867) and USAA (896).

Are Americans simply tuning out the message from the tsunami-like wave of car insurance ads battering them day and night, or have they developed rigor mortis when it comes to picking up the phone or a mouse to compare rates? It’s like the old days before remote controls, when less inclined viewers would watch a given television channel for hours at a stretch, not so much because of exemplary programming, but because they were simply too lazy to get up off the couch to change channels.

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Schnurman: Are car insurance companies turning loyal customers into chumps?

David Woo/Staff Photographer

 

A weak credit score can add thousands to your car insurance bill, and that’s just the start of the pricing mystery around insurance.

How often you upgrade an iPhone, change cable providers or call your insurance company can affect premiums, too. They’re part of the big data being mined by insurers as they try to determine whether you’re likely to shop around or take your business elsewhere.

This practice is called “price optimization,” and the goal is to raise premiums as much as possible without losing a customer. The industry says such pricing is widely used in other fields, such as airline travel, electricity, gasoline and Uber. And it’s generally uncontroversial.

But insurance is supposed to be different. Because it’s required to drive a car or get a home mortgage, it’s regulated and rate increases must go through the state’s insurance department. It’s also a complex product with many variables in coverage, deductibles and claims history.

Seven states have explicitly banned price optimization. Not Texas, which believes in free markets and limited regulation, and has some of the highest insurance rates in the nation.

“Consumers have been taught that if they’re good, responsible drivers, they’ll get a good rate. That’s basically bull sugar,” said Birny Birnbaum of the Center for Economic Justice in Austin.
The insurance industry likes to say that regulators can’t even agree on a definition for price optimization. But Birnbaum makes it simple: “It’s essentially price gouging by another name,” he said.

Savvy shoppers can compare prices and pressure companies for the best rates. But many are too busy or confused by the product. Lower-income customers often have fewer choices and are less likely to shop around, according to a California directive.

“Price optimization represents a fundamental threat to fairness in rating,” Commissioner Dave Jones said in February when he notified insurers to stop the practice.

Consumer Reports pulled back the curtain on auto insurance pricing with a recent investigation. It documented the impact of credit scoring and other nondriving factors on rates. Drivers with weak credit pay up to $2,000 more in Texas, the magazine said — and $1,000 more than someone with excellent credit and a DWI conviction.

The magazine analyzed over 2 billion car insurance quotes in every ZIP code in America. It also quantified discounts for loyalty, bundling home and auto insurance, and adding anti-theft devices.
For the most part, the savings are paltry. In Texas, just 4 of 16 insurers offered a discount to customers who had been with them for 15 years; only two, both units of State Farm, gave a significant cut to the most loyal customers, according to the magazine and Quadrant Information Systems.

Bundling saved Texans an average of $75 a year, about 6 percent of the total bill, the magazine said. That’s lower than the U.S. average of $97 and not exactly a game-changer. Discounts for car alarms and tracking devices are less than $10.

The upshot is that the savings touted by some insurers rarely add up to much while nondriving factors, such as credit scores and price optimization, can keep ratcheting up the bills.

Historically, insurance rates are based on three elements: claims, expenses and profit provisions. But profit optimization represents a new aggressive tack, said J. Robert Hunter, former Texas insurance commissioner.

“For the first time, insurers are using something that clearly has nothing to do with risks or costs,” said Hunter, director of insurance for the Consumer Federation of America. “It’s about maximizing profits. And you can’t charge two different prices for the same risk.”

Last year, Maryland regulators said insurers could not use the pricing scheme because it led to rates that were unfairly discriminatory. They said some insurers considered whether customers had complained; if not, they were more likely to absorb premium increases.

“This means that policyholders would be charged higher premiums simply because they have not complained to the insurer, regardless of whether [they] pose any more risk of loss,” said the bulletin from the Maryland Insurance Administration.

While Texas has not explicitly banned price optimization, it’s illegal to unfairly discriminate here, Birnbaum said. But he believes the practice is common. The CFA also said that insurers around the country have been using such pricing without clearly disclosing the process to regulators.

But don’t even try to predict which factors have the most impact on your rates.

“Logic isn’t part of the deal,” Birnbaum said. “This is a data-mining exercise. They’re looking for correlations. Once you have those, an algorithm can predict anything.”

One example of absurd pricing was taken from an Allstate rate filing in Wisconsin. The CFA compared two 40-something drivers with identical records; the applicant who was 3 months older was quoted a 30 percent higher premium.

While it’s easy to say, “Shop around,” many don’t switch. Consumer Reports said that over half its subscribers had remained with the same insurer for at least 15 years.

That can be expensive. In some states, renewal rates are hundreds, even thousands more than rates for new customers, the magazine reported.

A survey of Texas insurers didn’t show any loyalty penalties. But with price optimization, that may be just a matter of time.

“It’s upside down and backwards,” said Alex Winslow of Texas Watch, a consumer group in Austin. “We’re punishing people for being loyal.”

Or maybe for being complacent — about insurance, Internet service and almost anything else.

Follow Mitchell Schnurman on Twitter at @mitchschnurman.

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Your view on 'eye-watering' car insurance fees

"Disgusting" and "awful" and are among the phrases Newsbeat listeners and followers have used to describe additional fees they're charged by car insurance companies.

It's after consumer organisation Which? looked at 44 UK insurers and suggested some costs were "eye-watering".

The industry argued that overall, premiums had fallen and the market was highly competitive.
Here are some of your experiences compared to Which?'s findings.

Cancelling or renewing policies

The study found some people face costs of up to £75 for cancelling a policy.

That's exactly how much David was charged but Paul in Canterbury said his cancellation fee was bit more expensive though.

He said: "I paid over £100 on a policy worth just over £200 for a complete year.

"It was a hidden charge and disgusting that they just get away with it. Insurance in this day-and-age should be completely transparent and flexible."

This is something that The Association of British Insurers (ABI) agreed with.

It advised customers to read their policy documents carefully but said extra charges should reflect the costs involved.

Which? found that one company, 1st Central, charged £50 to renew a policy, while most other companies process renewals for free.

None of the people who got in touch had an issue with being charged for renewing their policy.

Adjustments

The study quoted a fee of £35, charged by IGO4, for adjustment fees like changing your name, your address or your job while five other companies did not charge anything.

Two students got in contact separately to say they have been charged £18 to changed the address on their policy.

Although this doesn't match the highest sum Which? quoted one of them, Jake who is studying in Sheffield, pointed out that this was an annual fee as he "moves every year" while he's on his course.
One person, who didn't leave their name, explained they were also charged £35 for each car they had when they have moved house.

Which? suggest making changes online could save you money

 

They said: "We moved twice over the last year bringing our total fees to over £150 for moving between a two-mile radius."

However, some people were charged a lot more than IGO4's fee to alter details.

An anonymous texter said they had been charged £69 to add their husband's name to a policy, while Robert in Sunderland had to pay £86 to change his address.

Gareth, from north Wales, says he was quoted £92.50 to adjust the address on his policy.
He said: "This was more than half my annual policy price - it was cheaper to cancel and find an alternative."

The biggest fee we were told about came from Liam, who got in touch on Facebook and said he was charged £100 for changing an address.

"They didn't even send me any new documents, absolutely disgusting!" he added.

Which? found that Axa Direct and Swiftcover both charged £30 to provide duplicate documents - again this is a service that is usually free.

None of our listeners or followers who got in touch described being charged for making copies of policies.

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