How much to make you switch?

Nearly every driver has a price.

“I like my insurance company, and I wouldn’t switch insurers for $100,” says Managing Editor Des Toups. “But switch insurers to save $500? Sure I would.”

An survey of 4,023 adult car insurance customers about their satisfaction with 20 major carriers underlines that sentiment. Only about 10 percent said they would never switch auto insurance companies.

  • 90 percent said they would switch for savings of $1,000 (or less)
  • 83 percent would switch for savings of $500 (or less)
  • 63 percent would switch for savings of $250 (or less)
  • 27 percent would switch for savings of $100 (or less)

The carrier whose customers had the highest threshold was CSAA Insurance (California State Automobile Association, an AAA affiliate). On average, they required savings of $429 before they would consider a switch. Rounding out the top five carriers were:

Loyalty pays, but not very much

Insurers usually offer their most loyal customers a discount. The parameters of the discount vary from insurer to insurer.

While discounts of 5 percent for three years of loyal payments and up to a 15 percent after five years are often touted, actual savings seem to be much less.

“Loyalty discounts are a marketing tool that has little impact on premiums for most policyholders,” says Ken Lovoy of OPIC.

Data gathered for by Quadrant Information Services from six major carriers in every state show the average decrease in premiums for any given length of time with an insurer was:

  • 12 months: Less than 1 percent
  • 24 months: Less than 1 percent
  • 36 months: 1.8 percent
  • 60 months: 2.75 percent

In comparison, the average discount nationwide for paying your bill in full, rather than installments, was 3.7 percent.

Why aren’t rewards for loyalty bigger?

Even with a large loyalty discount, car insurance premiums usually don’t decline enough as drivers age, according to Lovoy. “As customers age, marry and earn more income, their insurance risk declines significantly. Even with loyalty discounts, the premiums, on average, don’t decline proportional to the risk,” he says.

It’s called “price optimization” – a calculated bet that a customer is unlikely to shop around.

“The goal of price optimization is to determine how much insurers can increase rates for customers beyond what is appropriate based on his or her risk profile,” says Bob Hunter, director of insurance at the Consumer Federation of America.

If that seems unfair to you, many agree.

Regulators in Florida have banned the practice, Ohio and California have issued warnings to insurers and the National Association of Insurance Commissioners (NAIC) has launched an investigation.

“This practice discriminates against people who don’t shop around, and discriminatory pricing is against the law in every state,” says Hunter.

While a loyalty discount might be the most visible way insurance companies show appreciation for longtime customers, it’s not the only one. Some companies offer:

  • Accident forgiveness: Progressive, for example, won’t raise your rates after a “large accident” if you’ve been a customer five years and accident-free for three. Liberty Mutual looks back five years as well – but you don’t need to have been their customer the whole time.
  • Shrinking deductibles: Nationwide and The Hartford, for example, decrease your deductible the longer your record of safe driving.
  • Trust: New or risky customers may have their driving records pulled at each renewal. A longtime safe driver may go years between pulls – which means a speeding ticket may not hit your record immediately.

Why don’t we shop around?

Despite reams of data and constant reminders by industry experts that shopping your coverage is the best way to save, most of us don’t. (See “How to compare auto insurance companies.”)

A 2010 Deloitte Research study found that 39 percent of auto insurance policyholders have been with the same insurance company for more than 10 years, and 30 percent have never changed insurance companies.

Almost 25 percent of the respondents said they never shop their coverage at renewal time, while 30 percent claimed to rarely shop it.

“Many consumers just find the shopping process invasive and unpleasant,” says Lovoy. Bundling, while convenient, doesn’t help push consumers to shop their coverage. “Multi-line policyholders might find another company that offers a better deal on auto coverage but a worse deal on their homeowners policy,” he says.

So, how often should I shop around?

 “We recommend drivers shop their policies every three to five years,” says Lovoy. “While insurers do offer loyalty discounts, it is our belief, based on our study, that these become increasingly inadequate the longer a policyholder stays with the same company.”

Toups agrees but adds that the calendar is not the only factor.

“Big changes in your life usually mean big changes in car insurance rates,” he says.

Marriage, homeownership, a change in car or address or driving record, or even better credit can expose potential savings, Toups says.