Your auto insurer make take advantage of your loyalty by charging you too much. Newly revealed practices show that many auto insurers overcharge loyal customers and get away with it because we don’t shop around.
The Consumer Federation of America (CFA) says insurers play a statistical game that takes advantage of long-time customers’ reluctance to change companies. You may dismiss this and say, “I get a loyalty discount.” That’s true. Customers with good driving records who stay with an insurer generally get a 5 to 10 percent loyalty discount.
But companies use your personal data to calculate whether you are likely to stay with them, even if the rates go up. Then they factor in the discount and raise the rates higher than they should.
CFA’s Director of Insurance J. Robert Hunter warns,“Watch out! Your insurer may be increasing your premium by far more than your loyalty discount, precisely because you have been so loyal.”
Insurers call the practice “price optimization,” or “PO.” The CFA says, “Many insurance companies, including about half of the larger ones, raise a driver’s premium if they conclude that the driver is not likely to leave their company. This means millions of drivers are possibly being charged a premium that is higher than the amount considered appropriate and fair for their risk profile.”
How Do They Get Away With It?
Most consumers don’t shop around for insurance:
- 24 percent of drivers don’t shop for insurance.
- 34 percent rarely shop.
- 16 percent shop every few years
That means insurers can target three-quarters of policy-holders with price optimization.
What Should You Do?
1. Even if you don’t want to do it, shop around for insurance. You may find lower rates with a different insurer.
2. The CFA asks you to get in touch with your state insurance commissioner and complain. State officials can tell insurance companies to stop using price optimization to unfairly raise rates.
You can find you state’s commission here: http://naic.org/state_web_map.htm
My husband and I plan to shop around immediately. Comment and let us know how much your rates went up.