How frequently should you shop auto insurance? One blog article we read advised as much as every renewal, but that just may be a bit much. But this does beg the question, how frequently should you shop your auto insurance, or any insurance for that matter?
When you shop for insurance, you’re hoping to primarily accomplish a few things:
- Confirm the rates you’re currently paying are fair
- Confirm that the coverage you’re buying remains sufficient for the assets you’re protecting
- Look to find new value or convenience that you didn’t have with your prior or current auto insurance
There may be other reasons, like you’ve lost confidence in your current insurance carrier or agent, but we’ll cover those topics to another post.
How to comparison shop for auto insurance
Before we jump in and discuss some of the things that impact your auto insurance premiums, and how they make it smart to regularly shop auto insurance, let’s review two of the best ways for you to shop auto insurance.
There are a few ways to make shopping for auto insurance easier, you can use online quote aggregation sites (www.compare.com or www.thezebra.com), or you can use an independent insurance agent. Both of these options provide the consumer the ability to get rates from a large set of insurance companies with a single input, but there are some qualitative differences between the two options.
We aren’t recommending a captive insurance agent, although they can be very capable and do frequently offer quality insurance products, but they typically can only represent one insurance company, and therefore, lack the capability of providing comparison auto insurance quotes.
Online comparison auto insurance quote aggregators are typically websites that offer the ability to see the rates of several insurance companies, but they don’t necessarily represent these companies. If you are offered the ability to purchase one of these auto insurance policies, it’s done by calling the company directly (or their outsourced call center), or bridging to the company to complete the transaction online. It’s important to note, at this point you are now dedicated to buying that specific policy, and are no longer comparing. If you were interested in truly comparing the differences between the policies you were considering while comparing rates, you may not be able to get the information you are seeking … at least not directly.
The advantage of the online comparison auto insurance sites is that they will offer you quotes from many insurance carriers in a convenient online process, the weakness is that you are only seeing the rates and not getting any comparison information on coverage, service or claims capability.
Another option is to contact your local independent insurance agent. Depending on the insurance agency, they may also have online auto insurance quote capabilities. For instance, this site is provided by an independent insurance agency, and it provides online comparison auto insurance quotes. Like with the aggregator model, you can shop online with this independent insurance agency before calling.
Independent insurance agents offer comparison auto insurance quotes with multiple insurance companies and can let you see a range of premium options. What makes the independent insurance agent different is that they can also provide you a side-by-side comparison of coverage, service, and value. They can do this because they frequently are agents for the companies they work with, and have a deep familiarity with the policy and options provided by the carriers.
Another strength of the independent insurance agent (or even the captive insurance agent), is they will set you up on periodic reviews so you don’t have to do the work at each renewal to see if you can benefit from a change.
If there is a weakness with the independent insurance agent is that not all of them have a robust online presence for online auto insurance quote comparisons, and they may not all have the right insurance company relationships to match your needs with the right protection.
Now that you have an idea of where you may want to start shopping, what are the reasons that shopping makes sense?
Seven reasons to shop auto insurance regularly
1) You don’t lapse your insurance and have a good driving record
In many states, insurance carriers use information from your current insurance policy to determine tier placement. Tiers are simply a fancy way of saying auto insurance discount. For instance, if you typically keep your policy in-force, have no lapses in coverage, and carry higher bodily injury liability limits, you may find yourself in a “preferred” tier, and this can spell big discounts. Alternatively, if you buy minimum financial responsibility limits, and have recently lapsed your policy … or are driving without insurance … you can be placed in a “nonstandard” tier and pay much higher rates.
If you purchased your policy while lapsed and at least 6-months have passed, you should shop your insurance because you can now improve your tier placement and lower your rates.
The same is true for accident or violation history. All insurance companies have a system of assigning points to certain types of violations and accidents, as these points increase so do your rates. If you purchased your current policy when you had a ticket of accident in the three (3) years preceding the occurrence, you may want to shop and see if you record has is now clean. The savings can be anywhere from 5% to 25%, depending on the violation or accident history.
In the state of California the rules a bit different, insurers generally can’t use prior insurance to develop premiums when selling a policy as new business. However, for violations this can be a big change in premiums. Not only do companies charge for the points assigned to your accident or violation history, that same history can be disqualifying you from the state mandated Good Driver Discount of 20%.
In the case of prior insurance experience or violation and accident history, it makes sense to shop your insurance, even if you find that your in the middle of your current term. You may already have dropped an accident, or earned enough prior insurance experience, that a change will come with savings that your current carry cannot apply mid-term.
2) Have you had a birthday since you’re last renewal?
It’s no secret, insurance companies use your age (or in California Years of Experience) to determine your auto insurance premiums. The typical rule of thumb is that younger drivers pay more than older drivers, but this only holds true until you reach a certain age … then it starts to go back up. So, if you’ve recently had a birthday, you may want to see if other auto insurance providers treat your age differently.
If your current auto insurance company groups age (or experience) differently than their competition, or they have a different rate of decrease, you could find significant savings when you change carriers.
Taking the time to shop auto insurance at your birthday may pay particular benefits if you have a 12-month term policy, and your birthrate is near the beginning of the term. Just like with your violation or accident history, your current policy cannot make these types of adjustments mid-term.
3) Insurance companies change rates, and classification plans
Insurance companies are constantly monitoring the accuracy of their rate and classification plans. In fact, it is not unreasonable for them to review auto insurance rates every 9-months. These changes are simply a business trying to maintain a reasonable level of profitability.
When insurance companies take rate changes, they are generally responding to changing trends or adverse development in claims payments, or reacting to having a segment of their book incorrectly priced.
Each time an auto insurance product is evaluated, the base rate and the classification factors are subject to change. These changes can create significant swings in the amount the insurer charges. These changes can be seen as an opportunity to shop auto insurance premiums, to see if other insurers have either not made this adjustment yet, or aren’t having the same bad loss experience that resulted in your current auto insurance provider changing rates.
4) Has your vehicle depreciated?
While insurance carriers rarely use the market value in determining your vehicles symbol or rating factor, they do use the model year. As vehicles get older the repair costs are reduced and this is reflected in your premiums. This will happen naturally.
However, as a vehicle ages you may want to consider the value to replace the vehicle against the premiums for physical damage coverage, and determine if you still need to carry the comprehensive and collision coverage. This is a standard part of an insurance agent’s annual coverage review, but it can also be a trigger for you to shop auto insurance.
5) Carriers expect you to remain complacent
In the auto insurance game, it’s well know that new policies are less profitable. As policies mature (or renew), they steadily become more profitable. Because of this insurers don’t give much in the way of renewal discounts because they need the profits from the renewals to subsidize the losses at new business.
In fact, many consumers simply make a choice to stay with an insurance company because it’s easy, not recognizing that premiums have steadily been increasing over the years. The rates that some are paying may be hundreds of dollars out of the market, but if you don’t shop auto insurance regularly, they are completely unaware.
Insurance companies use this complacency to build lifetime value and elasticity models, and they temper rate changes in segments where the consumer is less likely to stay, and maximize increases where the consumer is perceived to be more durable. This is a form of optimization.
If you are the type of consumer who has been insured with one company for over 2-years, it’s time to shop.
6) External factors – like weather may impact your rates
If you are insured with a large national insurance company, and there is severe weather (eg hurricane), this could cause your rates to increase. This is true if you’re living in California, and the weather event happens in Florida.
It’s not that the weather event directly impacted your geographic area, but the insurer generally took a severe economic hit. When this happens they insurer will need to increase rates in all products and markets to recover lost surplus.
If you are insured with one of these large insurers, you may get a better rate from a regional carrier that doesn’t have exposure in the areas hit be sever weather.
7) The trigger events
There are events in your life that can also lead to additional savings on car insurance. Married couples normally qualify for better rates than their single counterparts (saving an average of $74 annually) because they are viewed as a statistically lower risk. Credit can also significantly impact rates (in all but three states); our study shows that drivers can save 17% on their car insurance by improving their credit by just one tier. Homeowners also pay about 2% less per year on their policies than renters. These factors may improve your rate with your existing company, but they also cause you to appear more favorable to other companies, which could result in significantly lower rates than even your provider can offer.
Because there are so many factors and variables the can cause rates to fluctuate, and because those things rarely line up on an annual basis, if you shop auto insurance it will help to maximize your benefits and keep your insurance at its best value.
You can also save time if you elect to use an independent insurance agent. Just ask the agent how frequently they conduct coverage and policy reviews, you’ll be surprised, many will do this for you annually just to make sure you continue to get the best protection and value … and you won’t have to do any of the work (other than answer a few questions).
Image provided by Justin Lueblke