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Special Investigation Into Car Insurance Pricing

The most popular car insurance agencies have catchy commercials that you can recite at the drop of a hat. There’s Flo from Progressive who dons the white apron and talks about bundling your policy or naming your price to save $500 on car insurance. There’s the gecko from Geico who has a British accent and can save you at least 15% if you take 15 minutes out of your day to speak with a representative. There’s Allstate’s menacing mayhem man who gets into accidents or causes accidents to personify said issues and make them more relatable. And of course there’s Jake from State Farm who seems so conspicuous to call at night for any lover worried about a cheating spouse.

“What are you wearing Jake from State Farm?”-Spouse

“Uhhh khaki’s”-Jake 

More like, uhhh a disguise to distract you from discriminatory practices that helps us charge you more for coverage.

So, are you in Good Hands?

Recently, there was an article published in Consumer Reports[1] whereas the writers went undercover for about 2 years to uncover why car insurance companies have such a variety of rates in each state. Why do these companies claim one thing but have the reasoning or factors to charge you another price? How can consumers get the price they deserve, not what the insurance agency projects they deserve? Well there are several factors that you wouldn’t assume these companies would take into consideration when instituting your premium price-but the facts don’t lie.

Your Credit Score

Your credit score could have more impact on your premium than your driving record. You might not think it could happen but car insurance agencies are looking through your credit history and files to figure out if you would file a claim or not. If they believe that your credit isn’t up to their premier standard, they will charge you more, even if you have never had an accident. Each individual agency focuses on an assortment of factors they believe are the most important in a credit report that will eventually summarize into a proprietary score. This score is so unique to each company that no regulators can be used to guess the dependably of said score.

If you had a good score, you are more likely to pay between $60 to over $500 more per year, on average, than similar drivers with better scores, depending on the state they called home. For instance, in Kansas, “one moving violation would increase their premium by $122 per year, on average. But a score that was considered just good would boost it by $233, even if they had a flawless driving record.” Furthermore, in the same state, if you were to have a poor credit score, that increase could be up to $1,301 more per year.

These agencies are under no authority to tell you of anything dealing with the processes of selecting one premium price over another. Consumers have to rely on regulatory agencies who also don’t completely understand the facts and figures the insurance companies give them because of the unique factors each company uses. They won’t fully discuss it with them and they do not have to discuss it with you either. Two-thirds of consumers surveyed by the Government Accountability Office in 2006 had no idea that their credit could affect what they paid for insurance. Insurers don’t have to tell you; and they certainly will not advertise that fact for their own benefit. If they can get away with sending you adverse action notices because of a drop in your credit line, canceling your policy or increasing your rates, they will do so to protect their assets. The only states where insurers cannot hold this information against you are California, Hawaii and Massachusetts. In Florida, you bet they will.

The Accidents You Might Have

Many people need to buy insurance (with the exception of New Hampshire) to own a car. This is just a fact of life. However, many feel that it’s necessary burden so that if there is an accident in the future, the insurance agency will help financially. However, the unfair aftermath of allowing credit scores to dictate the future probably of possibly claims or to set premium prices is that it also forces customers to dig deeper into their pockets to pay for accidents that haven’t happened and may never happen. The example they used to prove this notion was a comparison between single New Yorkers with good credit scores and clean driving records versus single Californians who had similar ratings. The New Yorkers had to pay an average of $255 more in annual premiums then if they had better scores, while the Californians weren’t charged for only having “good” credit.

This expectation of pay due to credit scores also reduces the slap-on-the-wrist that careless drivers would normally take in states that don’t allow FICO scores to overrule driving records. The New Yorkers in the explanation above are already paying for this accident before it even happened. The Californians are slapped with a huge increase in their premium to give them a memorable warning to drive safely.

Ignorance in the Numbers

Car insurance companies will also maximize their profits by determining how much money you are willing to spend based off of your knowledge that you are actually spending it. In the past few years, these companies have formulated new techniques to determine this “sensitivity to prices”. This is called price optimization. Agencies use data about you and statistical models to gauge how likely you are to shop around for a better price. So if you don’t complain or look around for better deals, your loyalty could be your downfall. If you’ve accepted an increase in your policy in the past and haven’t moved on, chances are you’ll do it again. So what other data are they using?

They use your spending habits such as nights out on the town and iPhones or TV plans to determine if you are a careless spender or a saver. Bob Hunter, the director of insurance for the Consumer Federation of America[2], has studied price optimization and was the first to bring attention to its discriminatory practice to regulators. However, Robert Hartwig, president of the Insurance Information Institute, countered this argument stating that this practice was completely legal and fair because the six states that have prohibited this technique haven’t proved how it unfairly adjusts the market. The regulators who were brought into prospective of price optimization seem to side with Hunter because these agencies that use factors cannot base someone’s probable priorities over how they spend their leisure money. Amica and State Farm insist that they do not use this form of statistical data to determine premium prices, while Allstate, Geico, Progressive and USAA declined to discuss.

Do teenagers add more to my premium?

In most cases, adding a liable teenager will cost you a tad more money than you used to pay. On the other hand, the amount of money that could be charged is based on your ability to shop around-the exact reasoning for the previous price optimization technique. If you aren’t going to look for possible deals, adding teenagers will add more than you have to pay. By playing the field, agencies will try to come up with the best strategy to get you as a customer.

Insurance companies know too well that teens have the highest risk of automobile accidents out of any age group. However, some are willing to cut you a deal. It might mean that you’ll need to quit your current plan to switch to a new one, but the end result will be less stressful. When the investigation searched through policies in each state, they found that many opportunities emerged for savings. For example, in California, a 55-year-old couple without a child might have Allstate Indemnity for its $1,762 annual premium, the lowest rate in the entire state. However, this same couple would have an increase of 194 percent or an additional $5,182 a year for adding a 16-year-old. If they couple were to shop around, they could have found that Auto Club would charge them only 4 percent more or $2,667 per year to cover the teenager.

Major Discounts Turned into Major Disappointments

Everyone knows that paying for insurance can mean a hefty price tag for any driver. Some companies like to distract this price with bundles including home and other “safety” features that could be paid through one plan. Even people who took student-driver courses that were advertized as a major savings possibility found that these discounts only averaged about a little over $60 bucks a year and about $90 for the bundling.

Some of the most rewarded customers got a substantial discount due to their children having a good academic record. It won the sample family in the investigation an average of $263 annually just based purely on the children’s performance in the classroom. That means kids with the best education-and more likely the middle to upper class families who have the money-get to save the most. Just like the credit rating, the academic standard doesn’t necessarily predict driving habits. The most exceptional student can be the most careless driver.

Continually, as expressed earlier on, even if you are a loyal customer, your premium prices may steadily increase. Most consumers would think that their payments would eventually become lower because of their loyalty to a certain agency. Nevertheless, while the study did find some car insurance companies who gave a sizable discount to faithful customers, others either gave nothing at all or actually introduced a price hike. Why would you leave a company after 15+ years if they add a little more money each year or stack on a price later on when you have trusted them for as long as you have? Companies capitalize on consistency.

The Hidden Truths

These factors that go into how a car insurance company comes up with prices for rates and premiums have close to nothing to do with your driving performance. Although many agencies take it into account, it seems as though FICO scores, consumer ignorance, loyalty, teenagers and spending habits have more of an effect on what you’ll spend on your car than your safety as a driver. This examination of insurance companies reveals unfair pricing practices and discriminatory habits that scrutinize your ability to pay rather than your ability to drive. All consumers have the right to know what’s behind the going rates for products and services so that they are not subjected to unfair and potentially illegal tactics. If you feel as though this is happening to you or if you would like to look into your car insurance policy, you should speak with a professional.

Sibley Dolman Gipe Accident Injury Lawyers, PA

Consult with an experienced Florida Attorney to help you determine your legal rights and recourse. Sibley Dolman Gipe Accident Injury Lawyers, PA has a reputation for representing victims throughout the state of Florida and will never represent an insurance company. We are available to answer your most pressing questions by phone: (727) 451-6900.

Sibley Dolman Gipe Accident Injury Lawyers, PA
800 North Belcher Road
Clearwater, FL 33765
(727) 451-6900



[1] http://www.consumerreports.org/cro/car-insurance/auto-insurance-special-report/index.htm?utm_content=buffer7bcd8&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer
[2] http://consumerfed.org/