In our Phoenix personal injury law firm, we work every day with insurance companies, especially car insurance companies. Their business models are often opaque, even labyrinthine. Consequently, if you think you are paying too much for car insurance, you are probably right.
Auto insurance premiums have skyrocketed since 2013, up nearly 10 percent, which is more than six times the rate of inflation. This massive price rise has resulted in an estimated 30 million consumers driving without insurance. Consumer Reports recently completed a 2-year-long study that analyzed more than 2 billion car insurance price quotes from more than 700 companies in all 33, 419 general U.S. ZIP codes.
What explains this rise in premium prices? Most consumers think their premiums are based on their driving record, the type of car they own and the number of miles they drive in a year. They are also not based upon car accident claim rates. Presently, auto insurance premiums are based on your “price sensitivity,” or how much the insurance company thinks you will be willing to pay before you seek another insurance company. Auto insurers have named these methods “price optimization.”
How is your Price Sensitivity determined? Your credit score is often more important than your driving record. And the credit score that auto insurers use is only tangentially related to your FICA score. Auto insurers use proprietary algorithms to determine your credit score, and they are not legally obligated to disclose their methods.
In addition, auto insurers use marketing data to discover whether you use department store or bank credit cards, how often you change your cable provider, the number of iPhones you buy, even the amount of liquor you purchase. This marketing data enables the auto insurer to determine your socioeconomic status and to set your premium accordingly.
Amica Mutual and State Farm do not use price optimization. The other insurance companies refused to disclose how they determine your premium. If you are eligible, USAA has low premiums and supposedly high claims satisfaction. However, our experience with USAA has been equally as bad as the other carriers, especially with poor service and claims payment on their medical payment policies.
Consumer Reports suggests consumers visit thezebra.com, a website that uses independent data from Quadrant. It provides customized premium estimates from 18 to 35 insurers, depending on where you live. This site will help you thoroughly assess your options and find the auto insurance plan that is right for you.