Auto Insurance: Consumer Reports' Red Flags And Issues

Auto insurance is a crucial aspect of car ownership, protecting you from financial calamity in the event of a collision or injury. However, Consumer Reports has revealed that auto insurance companies use a secret scoring system to determine rates, which may have little correlation with an individual's driving habits. This lack of transparency in pricing has resulted in consumers paying more than they should. The issue is further compounded by the practice of price optimization, where insurers use customers' shopping behavior to justify higher rates. As a result, many drivers are overpaying for their auto insurance without realizing it.

Car insurance premiums are rising

Car insurance premiums have been rising in recent years, with the average annual premium now at its highest: $1,470 per year. This is a 23% increase since 2011. In some states, the increase has been even more significant. For example, in Colorado, car insurance premiums rose by 78% from 2011 to 2018, while in Rhode Island, prices increased by 54% during the same period.

There are several reasons for the rise in car insurance premiums. One factor is the increase in severe weather events that damage cars and cause accidents. Vehicle thefts have also gone up by 7% since 2013, leading to higher repair costs. Distracted driving is another contributing factor, with the increase in the use of smartphones leading to more accidents. Additionally, low gas prices have resulted in more drivers on the road, increasing the potential for accidents.

The rising cost of car insurance is a concern for many consumers, especially those who have seen their premiums increase significantly. In response, some drivers have chosen to switch insurance companies to find better rates. According to a Consumer Reports survey, 62% of those who switched insurers found a better price, and 77% were highly satisfied with their new carrier.

To save money on car insurance, experts recommend shopping around and comparing rates from different insurers. Other ways to lower premiums include increasing your deductible, dropping collision and comprehensive insurance for older vehicles, taking a defensive driving course, and bundling your auto coverage with your homeowners insurance.

While it is essential to have adequate car insurance coverage, the rising cost of premiums is a burden for many drivers. By being proactive and exploring different options, consumers can help offset price increases and find more affordable coverage.

The rise in car insurance premiums can be attributed to various factors, including an increase in severe weather events, vehicle thefts, distracted driving, and more drivers on the road due to low gas prices. These factors have led to more accidents and higher repair costs, resulting in insurers raising rates.

How Consumers Are Responding to Rising Premiums

Many consumers are concerned about the rising cost of car insurance, especially those who have experienced significant increases in their premiums. As a result, some drivers have chosen to switch insurance companies, with 62% of those who switched finding better rates and 77% reporting high satisfaction with their new carrier.

Ways to Offset Rising Premiums

To save money on car insurance, experts recommend shopping around and comparing rates from different insurers. It is also important to review your policy regularly and make sure you are getting the best rate based on your driving record and other factors. Other ways to lower premiums include:

• Increasing your deductible: By agreeing to pay more out-of-pocket in the event of a crash, you can lower your annual premiums.
• Dropping collision and comprehensive insurance: For older vehicles, you may consider dropping this coverage as the value of the car decreases over time.
• Taking a defensive driving course: Some insurance companies offer discounts for customers who complete an approved course.
• Reporting low mileage: If you drive less than 10,000 miles per year, you may qualify for a lower premium.
• Bundling your auto and homeowners insurance: Some companies offer discounts if you purchase multiple types of insurance from them.

Loyalty to one company may cost you money

While it is generally good to change carriers from time to time if you’re not satisfied with the one you have, staying loyal to one car insurance company may be costing you money.

Switching Insurers Could Save You Money

According to a Consumer Reports survey, 62% of members who switched insurers in the past five years found a better price, and 77% of those who switched were highly satisfied with their new carrier. This is because car insurance premiums have jumped in recent years, and shopping around can help offset price increases caused by factors outside your control.

Price Optimisation

You may be offered a loyalty discount, but this could be undermined by an insurance practice called "price optimisation". This is when insurers use data about your online and offline shopping behaviour to gauge your sensitivity to price changes. They may conclude that you won't leave and so will charge you more, even if you've been a loyal customer with a good driving record.

How to Be a Smarter Shopper

To get a better deal, consider price-shopping annually, focusing on claims-settlement experience and price. You could also try direct writers that employ their own agents and may have competitive rates. Also, look beyond the big national carriers – some of the top-rated insurers are medium-sized or focus on specific regions, professions, or membership groups.

How to save on car insurance

Car insurance is a necessity for drivers, but it can be expensive. Here are some ways to save money on your car insurance:

Shop Around for Insurance

It pays to shop around when looking for car insurance. Prices differ from company to company, so getting quotes from multiple insurers can help you find the best rates. Compare insurance costs before buying a car, as rates can vary depending on the vehicle's price, repair costs, safety record, and likelihood of theft.

Review Your Coverage

Review your insurance coverage regularly to ensure it aligns with your needs. If you have an older car, consider reducing optional insurance coverages like collision and comprehensive insurance, especially if the cost of insurance is more than 10% of the car's value.

Increase Your Deductible

By choosing a higher deductible on your car insurance, you can lower your premium costs. Just ensure you have enough savings to cover the higher deductible if you need to make a claim.

Take Advantage of Discounts

Insurers often offer various discounts that can lower your premium. Ask your insurance company about discounts for factors such as low mileage, a good driving record, automatic payments, paperless billing, and group memberships.

Bundle Your Insurance Policies

Consider bundling your auto insurance with other types of insurance, such as homeowners or renters insurance. Many insurers offer discounts for purchasing multiple policies from them.

Improve Your Credit History

Insurers often use credit information to price auto insurance policies. Establishing and maintaining a good credit history can help lower your insurance costs.

Sign Up for Driver Monitoring Programs

Some insurance companies offer discounts if you allow them to monitor your driving habits through smartphone apps or devices plugged into your car's diagnostic port. While this may involve giving up some privacy, it can lead to significant savings on your premium.

Compare Rates Regularly

Don't become complacent with your current insurer. Review your policy and compare rates from competing insurers annually or when significant life changes occur, such as moving to a new area or changing jobs.

Choose a Dividend Policy

Some insurers, like Amica and NJM, offer dividend policies where policyholders own a stake in the company's investments. While these policies may have higher premiums, you can receive dividend payments that help reduce the overall cost of coverage.

Take a Defensive Driving Course

Taking an approved defensive driving course can lead to discounts on your insurance premium. These courses are offered in many states and can provide significant savings, although you may need to retake the course periodically to maintain the discount.

While car insurance is a necessary expense for drivers, implementing these strategies can help you keep costs down and ensure you're getting the best value for your money.

The best car insurance companies

When choosing the best car insurance companies, it's important to consider factors beyond price. Financial strength, coverage and discount options, customer satisfaction, and online tools can all play a role in your decision. Here are some of the top car insurance companies based on these criteria:

Travelers

Ranked as the best insurance company overall for 2024 by NerdWallet, Travelers offers a broad range of coverage options and discounts. It received fewer customer complaints than expected and is one of the largest insurance providers in the nation. However, rideshare insurance is not available in all states.

American Family

American Family is a great choice for those seeking accident forgiveness. They offer two ways to achieve accident forgiveness and have a long list of insurance discounts. While they receive fewer consumer complaints than expected for a company of their size, their insurance is not available in all states.

Geico

With nationwide availability and a wide range of discounts, Geico is often a popular and affordable choice. They offer two ways to get accident forgiveness and have a robust website and mobile app. However, they do not offer gap insurance and have a limited network of local agents.

NJM

NJM is a strong choice for drivers in the Mid-Atlantic region, offering high customer satisfaction rates and perks such as free pet coverage and new car replacement. They received fewer complaints than most insurers of their size, but their insurance is only available in five states and they do not have a mobile app for managing policies.

Auto-Owners

Auto-Owners is a good option for those needing multiple insurance policies. They offer a wide variety of products with the opportunity to bundle, along with superior financial strength and few customer complaints. However, they are only available in 26 states and do not offer online quotes.

Amica

Amica is ideal for good drivers, offering high marks for customer satisfaction and low consumer complaints. They provide free perks for good drivers, including accident forgiveness and a disappearing deductible, along with the option to buy a dividend-paying policy. Some policy types are not available in Hawaii.

State Farm

State Farm is a popular insurer with high customer satisfaction and fewer complaints compared to other large competitors. They offer numerous discounts and extras, including travel expense coverage. However, they do not offer gap insurance.

USAA

USAA is the top choice for military members, offering insurance to active military, veterans, and their families. They provide competitive rates, high customer satisfaction, and military-specific perks, such as a discount for storing your car on base.

In addition to these companies, Progressive, Allstate, and The Zebra are also worth considering. Progressive offers comprehensive coverage options and tools like the Name Your Price Tool, although their customer satisfaction ratings are only average. Allstate is a good option for young drivers, offering various discounts and special coverage options, although their Drivewise program is not available in all states. The Zebra is an insurance comparison site that simplifies the process of shopping for auto insurance by allowing you to view several quotes at once.

The secret score behind your rates

How much you pay for car insurance may have little to do with how well you drive. Consumer Reports' analysis of over 2 billion car insurance price quotes exposes that insurers are increasingly judging customers on socioeconomic factors, such as credit history, shopping behaviour, and TV provider. These measures are then used in confidential scoring algorithms, which, thanks to Big Data, can access a lot more information.

This lack of transparency in car insurance pricing means that consumers are kept in the dark about which insurers charge more or less. For example, Progressive, with its pitchwoman Flo, advertises savings of over $500, but Consumer Reports found that it was actually the second most expensive insurer, with an annual premium $597 higher than the lowest from USAA.

How to Get a Better Deal

Consumer Reports recommends shopping for better rates from competing insurers every year and reviewing your policy to see how changes in your life may affect your insurance needs.

• Increase your deductible.
• Drop collision and comprehensive insurance.
• Take a defensive driving course.
• Report your mileage if you drive under 10,000 miles a year.
• Bundle your auto coverage with your homeowners insurance.
• Pay out of pocket for a minor, one-car accident.
• Get an independent insurance agent.
• Consider a dividend policy.
• Sign up for driver monitoring.

Frequently asked questions