With Auto Insurance Companies Loyalty May Be a One-Way Street
While many of us have the best intentions of showing our loyalty when it comes to our auto insurance company, it may be a one-way street. In other words, loyalty may mean a great deal more to us than it does to the guys who insure our cars. According to a leading consumer advocate group, the Consumer Federation of America (CFA), some of the bigger insurers may be engaged in an auto insurance pricing “scheme”…where consumer loyalty is possibly being used to charge higher premiums to their unsuspecting customers, costing American drivers substantially more, simply by staying with them.
So, the warning is out. There may actually be a high price to pay as a result of loyalty and the trust that you’re getting the best rate possible. Don’t be fooled into thinking that. The recent alert by the CFA describes how an expanding number of auto insurance companies are employing a new kind of pricing “scheme” – one that, essentially, penalizes their most loyal customers. Apparently, premium hikes are based on a statistical model developed to indicate the highest dollar amount that a policy holder is willing to bear before he or she is driven to begin shopping for coverage elsewhere.
The practice is referred to as “price optimization” and its main purpose is to squeeze the policy holder with increasing premiums based almost entirely on the probability that he’ll become fed up with the higher rates and search for other insurance companies that might offer him a better deal. Meanwhile, they’re profiting from that policy holder’s loyalty. And, although this isn’t considered universal practice among all auto insurance companies, it isn’t uncommon either. As a matter of fact, it’s quite common among the biggest insurers.
Sadly, the study shows that many American drivers who have held a policy with the same insurer for a number of years mistakenly believe they’re being rewarded for their loyalty…and, for one reason or another; don’t pursue their option of shopping for a better rate.
The CFA also states that this particular technique is not exclusively used in auto coverage. Other various types of insurance policies are likewise being priced using the “price optimization” model. However, auto insurance companies are the most prominent users of the practice and reap the most rewards. You may not be aware of it, but your loyalty could be burning a hole in your wallet as your insurer increases your premium by far more than he’s taking off under your loyalty discount…and, all because you’ve been so loyal over the years.
This practice is actually in violation of some state laws – those that prohibit insurers from deliberately and unfairly discriminating against certain consumers who share similar risk profiles as those who pay lower premiums. Unfortunately, no one is in any hurry to take action against abusers of the law. As usual, the consumer is pretty much on his own.
One important thing to take away from this is – don’t assume you’re getting a great deal on your auto insurance simply because you’ve been a loyal policy holder for five, ten, or fifteen years. There’s a good chance you’re paying more because of that loyalty.
The Consumer Federation of America makes a valid point – shop around. It costs you nothing…and, you might expose your insurance company as a “price optimizer”.
Never assume you’re getting the best rate on your auto insurance. Why not get a free auto insurance quote today?
Do you feel your car insurance company is taking advantage of you because of your loyalty? Feel free to share your thoughts in the comments section below.