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For one illustrative St. Paul couple, annual premiums for standard auto
insurance coverage would range from $820 to $2,246 among area companies,
a difference of over $1,400 per year. Even with State Farm, by far the
state’s largest insurer, the annual rate would be $1,415—almost $600 higher
than the lowest rate we found.
If you’ve recently had an accident and have a male, teenage driver on your
policy—a nightmare for most insurers (and most parents)—the rate differences
loom even larger: from $2,177 per year to over $4,000 per year.
These and other comparative rates, obtained from company websites and insurance
agents, are shown on our price comparisons for the largest insurers
in Minnesota, along with details of the assumptions underlying the companies’
rate quotes.
It takes a little effort to shop for insurance. But it is easier these
days than it once was to get at least a reasonably competitive rate using
the insurance companies’ websites. Even if you have to request quotes by
phone from companies and agents, the effort is small compared to the potential
year-after-year savings.
You won’t want to give up having a company that will deliver quality service,
financial soundness, and a willingness to stick with you if you have an
accident or violation or two. But you don’t have to. Such concerns are
not a reason to stand pat.
In this article, we will give you the background you need to shop successfully
and, on our price comparisons and Ratings Tables, comparisons of
individual companies to help you focus your shopping efforts on the best
prospects.
The first step in shopping is to decide on the types and levels of coverage
that will keep your risk to an acceptable level, at a reasonable annual
premium cost. You will have to decide among a broad range of available
auto insurance coverage options. When thinking about how much coverage
to buy, try to keep in mind that the purpose of insurance is to protect
you from losses that you can’t afford to cover yourself. When you buy more
insurance than you need, you are wasting money that simply goes to insurance
companies’ profits and administrative costs.
When you injure someone else or damage someone else’s property, you may
be required by law to pay for the loss. Your home, your savings, and even
your future wages are vulnerable.
“Liability” coverage pays the amount of money for which you may be liable
for bodily injury and property damage to others, up to certain limits,
and covers legal fees incurred in your defense. Bodily injury claims can
include wage losses, medical expenses, rehabilitation costs, and “pain
and suffering.” Property damage can include damages to someone else’s car,
building, or other property.
Your liability coverage will generally protect you, your spouse, other
members of your household, and anyone else who drives your car with your
expressed or implied permission. But any liability coverage you buy will
come with payout limits. If the damages for which you are found liable
exceed the limits specified in your policy, you’ll have to pay out of your
own pocket. It is up to you to decide the limits you are comfortable with,
keeping in mind that the higher the limits you choose, the higher the premium
costs.
The limits your insurance company will pay are usually specified in the
policy as a set of three numbers divided by diagonal lines. For example,
a 100/300/50 policy pays a maximum of $100,000 for bodily injury to one
person, a maximum of $300,000 for total bodily injuries when more than
one person is hurt in an accident, and a maximum of $50,000 for property
damage in a single accident. Some policies are simply written with a single
limit, say, $300,000, and will pay up to this limit even if only one person
is injured or if only property is damaged. Because of its greater flexibility,
single-limit $300,000 coverage is worth somewhat more than 100/300/50 split-limit
coverage.
Since your insurance not only protects your assets but also ensures financial
relief for anyone you may injure, Minnesota law requires you to buy at
least a minimum level of liability insurance. You are required to have
at least 30/60/10 coverage.
If you are considering driving without liability insurance, or if you are
considering a policy at the minimum coverage amounts, you should realize
that once you have driven without insurance or with low insurance coverage
levels, most companies will treat you as a person who takes unnecessary
risks, and will charge you very high premiums for future coverage.
Most drivers buy liability insurance and insure beyond the legal minimum—perhaps
out of a social concern for the possible victims of their negligence or
perhaps out of a personal concern to protect their assets from catastrophe.
Individuals with substantial assets (or with expectations of substantial
assets in the future) have the strongest reasons to purchase sizable liability
coverage: they have the most to lose; they are the most attractive targets
for suit; and they may get the least sympathy from juries.
Although buying coverage with higher limits will cost more, the cost increases
are often modest. As Figure 1 shows, a policyholder with 100/300 bodily injury
liability coverage (and $500 collision and comprehensive deductibles, discussed
below) might expect to increase his or her total annual premium by only
about six percent by moving up to 250/500 coverage and might expect to
save only about three percent by moving down to 50/100 coverage. And for
most auto insurance buyers, doubling the limits of property damage coverage
from $50,000 to $100,000 costs only a few dollars per year. Most consumers
consider these extra costs a bargain for increased peace of mind.
If you want to protect your assets and future income from claims in excess
of $500,000, you’ll want to consider an “umbrella” policy. Such a policy
will give you liability protection in addition to that provided by your
auto and homeowners policies. In addition to protecting you from claims
by others for bodily injury and property damage, an umbrella policy will
protect you against suits for other types of injuries, such as libel, slander,
defamation of character, false arrest, and invasion of privacy, which are
not covered by your auto or homeowners policies. Before selling an umbrella
policy, many insurance companies will require you to increase the liability
coverages in your auto and homeowners policies to the maximum amount offered.
“Collision” and “comprehensive” coverage pay for repair or replacement
of your car, regardless of who is at fault. This coverage is not required
by law, but if your vehicle is financed, your lender may require you to
purchase it.
Collision coverage pays if your car rolls over or collides with an object,
including another car. Comprehensive coverage pays for damage to your car
from almost all other causes—including vandalism, explosion, fire, wind,
and collision with animals. It will even pay if your pet chews the upholstery.
Comprehensive also pays if your car is stolen.
Both collision and comprehensive pay only up to the “actual cash value”
of your car. If you expect compensation for upgraded stereo equipment or
a special paint job or other unique feature, you will have to arrange in
advance for special coverage—and pay an extra premium.
As the actual cash value of your car diminishes, the cost of comprehensive
and collision coverage declines—but only declines significantly for the
first few years of the car’s life. You pay about the same collision premium
for a 10-year-old car, for which if you had a complete loss your insurance
company would pay you almost nothing, as someone else pays to insure a
six-year-old car. Accordingly, collision coverage becomes an increasingly
wasteful purchase as your car grows old.
Collision and comprehensive coverages are sold with a “deductible,” a specific
amount you agree to pay out of your own pocket on a claim before you are
entitled to collect from your company. By taking a high deductible, you
protect the company from the paperwork of processing small claims and you
do so without exposing yourself to the possibility of catastrophic loss.
In general, the wisest way to manage your money is to take as a deductible
as large an amount as you can afford to lose without seriously disrupting
your life.
The considerable savings that can be made in this way are illustrated on
Figure 1.
For example, the sample couple for whom we did the calculations for Figure 1
would probably save about 11 percent off their total insurance bill by
increasing their collision deductibles from $500 to $1,000 but would add
about nine percent to their total insurance bill by reducing their collision
deductible from $500 to $250.
The virtues of substantial deductibles are more obvious when you consider
that you may not even want to file claims with your insurance company unless
damages exceed $1,000 or so. Filing small claims might lead a company not
to renew your coverage or might lead to higher premiums.
Minnesota is a “no-fault” insurance state. The state’s no-fault law requires
you to purchase minimum levels of “personal injury protection” (PIP) coverage.
The no-fault law was established to help ensure timely payment of medical
costs for all parties involved in an auto accident, and to reduce the incidence
of lawsuits related to auto accidents. “No-fault” refers to the fact that
PIP coverage provides protection to you no matter who is found liable for
an accident; you collect from your own company even if the other driver
is at fault. Also known as “basic economic loss benefits,” this no-fault
portion of your insurance policy is the first to pay in the event of an
accident.
PIP covers only those expenses related to medical costs, lost wages, replacement
services (such as housekeeping), and, in case of death, $2,000 of funeral
expenses. It does not cover damage to vehicles. The minimum required PIP
coverage is $40,000; that amount is available to each person injured in
an accident, with $20,000 allotted for medical expenses and $20,000 for
non-medical expenses. You can choose among different deductible options,
and you can increase your coverage level for a small increase in your overall
annual insurance bill.
If you have more than one vehicle on your policy, you can “stack” your
PIP benefits. Stacking PIP limits essentially pools the PIP coverage for
all insured vehicles; if you have two cars and “stack” 20/20 coverage,
you have what amounts to a 40/40 level of protection. The cost to stack
coverage in this way is very low.
If you are retired, you can ask insurers to waive coverage for the non-medical
expenses portion of your PIP coverage, resulting in a premium discount.
If your expenses exceed your PIP limits or reach certain specified levels,
you may be able to collect from the other driver’s liability insurance
if he or she is found liable. You may also make a claim if you suffer certain
kinds of permanent injury, or death. Otherwise, you may not sue the at-fault
party. No-fault claims must be made within six months of the accident.
If you are the victim of an accident in which another driver is at fault,
you might expect to collect from that driver’s insurance company after
your PIP coverage runs out. But some drivers are uninsured. Also, even
an insured driver may be underinsured if your loss is large. If you are
the victim of an uninsured or underinsured motorist, you will be covered
first by your PIP coverage for your medical bills and lost wages; you can
turn to your collision coverage (if you have it) for repairs to your car.
But you will need other coverage if the medical expenses for you or other
covered persons exceed these coverages. “Uninsured/underinsured motorist”
coverage fills this gap if you can show that the other driver was at fault
or if you were the victim of a hit-and-run driver.
Minnesota requires such coverage at least to the 25/50 level. This coverage
generally costs less than $80 per year. All the reasons that argue for
higher limits on liability coverage—where you are protecting someone else—also
argue for high limits on uninsured/underinsured motorist coverage—where
you are protecting yourself. The cost of increasing your limit from 25/50
for uninsured/underinsured motorist coverage to 100/300 will generally
be small.
For an additional premium, most insurers will broaden your collision or
comprehensive coverage to include reimbursement for the expense of a rental
car while damages to your car are being repaired.
Since just about all the auto insurance companies are shameless in promoting
rental car coverage, we’re guessing that it is a lucrative line of business
for them. Given that even a modest level of coverage—typically $30 per
day with a limit of $600 per claim—usually costs $40 to $60 per year, our
advice is to decline it altogether, since the additional premium costs
over time are very likely to exceed the benefits you will collect.
“Towing” coverage will pay for the costs of towing; “emergency road service”
coverage will pay the labor charges for any repairs that can be made at
roadside (such as, changing a tire). Some companies offer only towing coverage,
others offer both towing and road service coverage together. Most companies
offer these coverages for about $10 to $25 per year, and a few companies
don’t charge anything for towing coverage. Under many policies, this optional
coverage will reimburse you only for $25 per claim. But for $3 or $4 more
per year, you can get coverage for up to $75 per claim. Though towing and
road service coverage is inexpensive, an auto club membership that includes
towing and road service might be a better deal for you if you would use
other club benefits.
Recently, some insurers have begun to advertise new policy features such
as “accident forgiveness.” When considering these types of plans, be aware
that some can be useless, and others need to be carefully evaluated on
a cost-benefit basis before buying.
As an example, Allstate heavily promotes its accident forgiveness feature.
With this option, if you have an accident, your premiums will stay the
same. Considering that your premiums might increase by 15 percent to more
than 100 percent, depending on the company, as a result of having just
one at-fault accident, Allstate’s offer might seem like a pretty good deal.
Allstate actually offers a few different plans: one provides the accident-forgiveness
benefit after you have had a claims-free policy with the company for at
least five years; another plan provides the accident-forgiveness benefit
immediately, and also has a “disappearing deductible” feature, whereby
your deductible decreases by $100 for each year in which you do not have
a claim.
To get either of these options, Allstate will charge you an additional
premium, starting right now. In essence, Allstate is trying to sell you
insurance not only against losses and claims you might experience because
of a future accident but also against future insurance-cost hikes that
might result from an accident. For our sample, 30-something couple with
totally clean driving records, with two cars and living in St. Paul, adding
Allstate’s basic accident-forgiveness option would cost an extra $100 in
premiums per year. That means our sample couple would pay $500 in extra
premiums over the course of five years before they could actually benefit
from the plan, and they would benefit after that time only if they had
an accident. To add Allstate’s accident-forgiveness-with-deductible-rewards
plan, which would provide immediate accident-forgiveness coverage, the
extra cost is $200 per year.
Is this immediate add-on to your insurance costs really worth it? If you
have a clean driving record, there’s a very good chance you won’t have
an accident that would cause your premiums to increase for a long time,
if ever. If you don’t, this premium protection will do you no good. If
you have a poor driving history, the chances are higher that you will have
a future accident, but the price you will pay for accident forgiveness
will be much higher than the price increase for our sample couple. In any
event, you have to decide whether even a substantial increase in premiums
as a result of an accident or accidents would be a catastrophe for you.
If not, don’t insure against it; insurance is to protect you from catastrophes.
Armed with a knowledge of various possible coverages, you can ask each
company you consider to give you a breakdown of its premium by type of
coverage and to quote premiums for different liability limits and deductible
levels. A typical annual premium quotation for a married couple with clean
driving records and two cars might look like the following:
Bodily Injury Liability—$100,000/$300,000 $223
Property Damage Liability—$50,000 $185
Personal Injury Protection—$40,000 $176
Un/Underinsured Motorist BodilyInjury—$100,000/$300,000 $167
Comprehensive—$500 deductible $181
Collision—$500 deductible $394
Rental Reimbursement—$30/day, $600 max. per claim $52
Emergency Road Service $18
Total $1,396
What you’ll pay for insurance depends not only on the coverage limits you
select but also on your driving record; your age, gender, and marital status;
where you live; the kind of driving you do; your credit record; and other
factors. Knowing these factors will give you a sense of how warmly you
can expect insurance companies to greet your requests for coverage and
may also give you some ideas for changes you can make in your life to cut
your insurance rates.
Your driving record is very important. Industry data indicate that an individual
who has had two accidents in the past two years is almost two-and-a-half
times more likely to have an accident in the coming year than someone who
has had no accidents. Similarly, the accident rate for individuals with
two traffic convictions in a three-year period is twice as high as the
rate for those with no convictions.
It will come as no surprise, then, that your previous driving record will
have a big impact on the best rate you can get.
As you can see for the illustrative couple for whom we did the calculations
for Figure 1, if the husband had received just one speeding ticket in the
last three years, the couple’s rate would jump by $127 per year, on average.
With some companies, having only one speeding ticket wouldn’t have affected
the couple’s premium, but with others, one speeding ticket meant a penalty
of over $300 per year. If the husband had two speeding tickets in the last
three years, the resulting premium increase was much more substantial—they’d
pay an additional $652 per year, on average.
Having a previous accident will be even more costly than if you just had
a speeding ticket. If the husband in the profile used for Figure 1 had caused
one accident in the last three years, our sample couple would pay an extra
$656 per year, on average. If he’d caused two accidents in the last three
years, their annual rate would increase by $1,266—more than double what
the couple would pay if they both had clean driving records.
Most companies consider the driving records of everyone who will be driving
your car or cars. Therefore, if you have a perfect driving record but your
spouse has had violations or accidents, you may not qualify for the “preferred”
rate. Different companies treat driving records differently for families
with more than one car. Some companies will charge a higher premium only
to the car driven primarily by the driver with violations and/or accidents,
while others will pool the “points” from the violations and accidents together
and spread them out over all the cars, or will assign the driver with the
worst record to the highest-cost car.
Men under 25 have the highest accident rates; after age 30, accident rates
are lower and fairly constant right up to age 65. Married men generally
have better accident rates than those who are unmarried. And women, especially
married women, do best of all.
This does not mean that women or older persons are better drivers than,
say, 25-year-old men. It is possible that their accident frequency may
be lower simply because they tend to drive fewer miles.
Nonetheless, low accident rates result, of course, in lower premiums. If
a company agrees to insure him at all, a single 17-year-old male can expect
to pay about four times as much as a 30-year-old male and twice as much
as his 17-year-old twin sister for comparable insurance coverage. Even
at 25, he can expect to pay about one-and-a-half times as much as his 30-year-old
counterpart.
A few of the common rating guidelines are as follows:
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Young drivers will generally find that between the ages of 16 and 20 their
rates will be slightly reduced each year (so long as their driving records
remain accident- and violation-free), then will remain level between the
ages of 21 and 24. But a few companies offer married women “adult” rates
(which are relatively low) beginning at age 21.
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Rates for single males age 25 to 29 are often the same as for those age
21 to 24. But single females in this age bracket may be classified as “adults.”
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Married males in the 25-to-29 age bracket are often offered “adult” rates
and married females almost always are.
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Most companies will classify single males as “adults” at age 30, but some
will continue to charge higher premiums up to age 49.
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Rates for drivers over 64 are normally either the same as, or slightly
lower than, the “adult” rate. Some companies offer a “senior discount”
for persons as young as 50.
Since youthful drivers have especially high accident rates, companies have
sought various ways to identify better risks so that better rates can be
offered to attract these youths and their parents.
Many companies offer special rates, usually four to 10 percent lower, for
youths who have taken approved driver training courses. Studies have shown
that these courses do not make better drivers, but “good risks” simply
seem to take the courses; so driver training serves as a convenient screening
device for the companies.
Many companies also give a break—often 10 to 20 percent—to youths who have
good grades (usually “B” or better). The combination of discounts for driver
training and good grades may total 15 to 30 percent of a family’s premium.
Most companies will also cut premiums dramatically if a youth goes to school
more than 100 miles away from home without taking a car. In addition, by
agreeing to restrict a youth’s driving to a single, less-expensive car,
a family may be able to cut the rates on other cars it owns.
Some areas present more chances for accidents, have higher incidents of
auto theft or vandalism, or have higher repair costs or medical and legal
charges than other areas. These differences sometimes result in auto insurance
rates that are 15 percent as high in some parts of the Twin Cities area
as in others.
Insurance companies charge more for insurance on cars that are relatively
expensive to replace, expensive to repair, or prone to damages or theft.
Some companies charge extra for, or refuse to insure, high performance
cars (Corvettes, for instance) because they think people who drive them
are likely to be less responsible than other drivers.
Table 1 shows vehicle-to-vehicle differences for one illustrative driver
we checked. For example, comparable coverage from GEICO might cost $577
for a Ford Freestar and $893 for a BMW 530i—a difference of $316 per year.
There are some vehicle types that tend to be relatively expensive with
all insurers, as you can see by looking at the rates for a Nissan Maxima
and the luxury sedan examples shown on Table 1, but the patterns are not
always consistent across companies.
|
| Ford Focus SE | 1240 | 1324 | 1223 | 729 | 795 | 691 | 958 |
| Honda Civic EX | 1200 | 1347 | 1269 | 694 | 870 | 679 | 906 |
| Toyota Corolla DX | 1220 | 1304 | 1260 | 637 | 767 | 703 | 908 |
| VW Jetta GLS | 1080 | 1304 | 1248 | 729 | 845 | 683 | 870 |
| Chevrolet Malibu LS | 900 | 1265 | 1216 | 756 | 795 | 727 | 886 |
| Honda Accord EX | 940 | 1284 | 1250 | 798 | 819 | 753 | 871 |
| Nissan Maxima SE | 940 | 1505 | 1325 | 819 | 897 | 893 | 972 |
| Toyota Camry SE | 980 | 1253 | 1271 | 679 | 746 | 771 | 844 |
| BMW 530i | 1160 | 1594 | 1406 | 893 | 897 | 861 | 980 |
| Cadillac Seville SLS | 1160 | 1526 | 1373 | 676 | 795 | 845 | 1016 |
| Lexus ES330 | 1080 | 1368 | 1377 | 775 | 767 | 859 | 928 |
| Lincoln LS Premium | 1000 | 1436 | 1465 | 729 | 897 | 835 | 906 |
| Ford Explorer XLT | 900 | 1255 | 1227 | 693 | 746 | 719 | 802 |
| Honda Pilot EX | 960 | 1120 | 1226 | 665 | 711 | 759 | 824 |
| Jeep Grand Cherokee Laredo | 920 | 1256 | 1270 | 693 | 795 | 713 | 865 |
| Volvo XC90 | 1080 | 1226 | 1297 | 774 | 819 | 741 | 864 |
| Dodge Grand Caravan SE | 860 | 1265 | 1156 | 603 | 767 | 691 | 866 |
| Ford Freestar SE | 880 | 1186 | 1208 | 577 | 726 | 671 | 787 |
| Honda Odyssey EX | 780 | 1088 | 1173 | 589 | 711 | 691 | 808 |
| Toyota Sienna LE | 880 | 1154 | 1188 | 631 | 726 | 711 | 809 |
FOOTNOTES:
1 Prices are annual premiums for 2004 model years for the coverages and driver characteristics for a single female, age 29, living in St. Paul.
2 Rates for Allstate were collected using its website’s “Ballpark” estimator. Rates include $100,000 of property damage coverage. |
Your insurance premiums may also be slightly reduced if your car has safety
devices or anti-theft features. For example, most companies give small
discounts for cars with four-wheel, anti-lock brakes; passive disabling
systems (which deactivate the car’s ignition system when the key is removed);
and anti-theft tracking devices (such as “LoJack”). But keep in mind that
these discounts are usually very small—typically only one to three percent
off the total premium.
In short, you will want to consider insurance costs when deciding what
vehicle to buy (and to some extent, how to equip it), but the impact of
your choice may be larger or smaller depending on which insurance company
you select. You can find information on relative insurance costs in The
Car Book, by Jack Gillis, which can be ordered from the Center for Auto
Safety at www.autosafety.org or by calling 202-328-7700. For information
on safety ratings, you can consult Consumer Reports and the Insurance Institute
for Highway Safety (www.iihs.org).
Costs are higher for drivers who use their cars heavily. Compared to a
driver who uses his or her car only for pleasure, one who drives to work
can expect to pay about two to 10 percent percent more for coverage, and
up to 15 percent more if the commute is more than 15 miles each way—and
about 40 percent more if the car is regularly used for business. You might
save more than $150 per year in insurance costs by using public transportation
or by joining a car pool.
Companies also look at the number of cars they are insuring for a family.
The second car usually costs considerably less than the first because companies
assume you will drive each car less than you would drive a single car.
If you can show that the total mileage per year for your car is less than,
say, 12,000 miles or, better still, 7,500 miles, you might get a further
break.
If you have had a lapse in insurance coverage at any time in the last five
years, including for non-payment of premium, expect your rates to skyrocket.
Insurers view potential customers who have had insurance lapses as high-risk
policyholders and most will not offer these potential customers their lowest
rate plans.
Similarly, many insurance companies will not offer their lowest rate programs
to potential customers who have recently maintained their liability coverage
limits below the 300/100/50 level.
If you are considering switching insurance companies, and have been “loss
free” with your current company for a while, you will want to consider
in the calculation any longevity discounts your company will be granting
you in the future. Many companies offer discounts of five to 10 percent
for three years of coverage without an at-fault accident and may increase
the discount at six years and nine years. Another benefit of longevity
is that your current company might examine your entire history with it
when deciding whether or not to re-assign you to a higher risk category
(and charge you higher premiums) if you have accidents, whereas a new company
might examine only your driving record in the last three years. Some companies
give “accident forgiveness”—not raising rates after an accident—to drivers
who have been with them five years or more and had no accidents. This is
different from the “accident forgiveness” policies, discussed above, that
are offered to new drivers for a price by some companies.
Many insurance companies offer lower rates if you insure both your car
and your home with them. Some knock off five percent, 10 percent, or even
more from either the auto rate or the homeowners rate; some knock off a
percentage from both.
From a consumer’s point of view, this dual-policy pricing is an undesirable
practice because it makes shopping more difficult; to find out the exact
savings you might realize by switching companies, you have to shop for
both types of coverage at once. But the discounts aren’t usually so large
that they have a major effect on the relative rankings of companies.
Another way insurance companies attempt to judge what kind of risk you
are is by looking at your credit history with one of the credit reporting
bureaus—Equifax, Experian, and TransUnion. Many companies have concluded
that consumers with poor credit histories are also more likely than others
to have claims.
Using complicated, secret formulas, insurance companies, or credit bureaus
on their behalf, calculate an “insurance score” that may be used to decide
what your rates will be, or even whether you will be covered at all. The
insurance score formulas are not the same as those used by lenders (such
as banks or mortgage companies) to calculate your “credit score,” but they
draw on the same types of data. The formulas vary from company to company,
since different insurers (or the scoring companies they use) weigh the
various factors differently.
The appropriateness of using credit histories in making insurance decisions
is a hotly debated topic among the insurance industry, consumer groups,
and state legislatures. Aware that there is risk of discrimination and
unfair treatment under such practices, many states have passed, or are
considering, laws designed to protect consumers by limiting the insurance
companies’ use of credit data. In Minnesota, insurers may not reject, terminate,
or non-renew your policy based on credit information alone; they must consider
other factors along with your credit history. Several other regulations
apply:
-
Your lack of credit history may not be used against you;
-
Inquiries on your credit report made by insurance companies and inquiries
not initiated by you may not be used against you;
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You may request a “reasonable exception” if your credit history has been
unduly influenced by excessive medical bills, temporary loss of employment,
or death of an immediate family member.
There are other requirements companies must adhere to in their use of credit
data, relating to the use of inaccurate credit history, notifications that
must be provided in the event a company takes adverse action, and filing
with the state’s Department of Commerce the calculation systems used for
determining insurance scores. The protections provided by the federal Equal
Credit Opportunity Act also apply, meaning companies may not use factors
such as race, sex, marital status, national origin, or religion in credit
scoring models. An insurer does not need your permission to look at your
credit history, but Minnesota law does require it to inform you that credit
information will be used as part of the underwriting process.
The impact of your credit history on the rates you might pay can be dramatic.
For example, when we queried Allstate for an auto insurance rate for a
couple living in St. Paul who had excellent credit, we were quoted an annual
premium of $1,300. For the same policy, but assuming the couple had poor
credit, Allstate quoted an annual premium of $2,480. We have found similarly
large differences with other companies.
Clearly, saving on insurance is one of many reasons that consumers need
to maintain good credit records—for example, by paying bills promptly,
not opening too many lines of credit, and keeping balances relatively low
on the lines of credit you do have.
You have two main considerations in choosing among auto insurance companies:
how much they charge and how good their service is. You may also want to
give some thought to a company’s record on terminating policyholders, its
financial stability, and a few other factors.
Our price comparisons show annual premiums quoted by insurance companies
for four illustrative profiles in four Twin Cities area locations. The
table includes rates for the companies for which we received 10 or more
ratings from CHECKBOOK’s survey of policyholders (described here). The listed companies account for the vast majority
of the auto insurance business in the region.
The rates on our price comparisons were obtained whenever possible
directly from the companies’ websites. Some companies did not have available
online rate quotes or would not provide an online rate to us; for these
companies, our researchers called insurance agents and, without disclosing
their affiliation with CHECKBOOK, obtained rate quotes over the phone.
As you can see, the company-to-company rate differences are dramatic—annual
differences of hundreds of dollars in all cases, and over $1,500 in some
cases. The rates on our price comparisons will probably not apply to
you exactly; most readers will differ in location of residence, vehicle
usage, vehicle type, or other ways. But the rates will give you a good
starting point for your own shopping. Companies with low rates on our price comparisons will likely be excellent prospects for you.
When you have identified a few possible companies, you can begin shopping
on the Web. Many companies enable you to get quotes directly from their
company websites. Or you can check the companies’ websites or the Yellow
Pages to locate agents. You can then ask each agent for a price quotation
for the coverage you want. Before shopping, it’s a good idea to make a
list of the coverages you plan to purchase.
Some “independent” agents sell policies offered by many companies; so one
of these agents can give you quotes from various companies. But other companies
are not available through independent brokers or agents; to get these companies’
rates, which often are the lowest rates available, you have to get a quote
from a company website or contact company agents directly.
If you will be contacting agents, you may have to push hard to get reliable
information from them. For our article on homeowners insurance, we found that many insurance agents were inept
at providing accurate price quotes and that some agents could not correctly
answer even the most basic questions about coverages. For auto insurance,
most of the agents we dealt with were able to quote accurate insurance
rates, but problems still exist. Some agents quoted wildly inaccurate rates,
while others persisted in attempting to sell more insurance than we asked
for or failed to mention the most attractive available plans. Always ask
an agent whether he or she has any other plans with better rates.
In addition to seeking out companies based on their relative rankings on
our price comparisons, you may want to try using one of the insurance
comparison websites. These sites tend to sound better than they are. Insweb.com,
for example, claims it will enable you to “compare quotes from the most
respected names in the industry” and lists about 20 participating companies
on its website. But when one of our researchers went through the process
of entering the detailed information necessary to get a quote from Insweb.com,
the site returned quotes from only four companies. On the other hand, we
have often found that among the few returned quotes, there is at least
one quote that is competitive—especially if you use several of the comparison
sites. The sites we found most useful were—
www.insweb.com,
www.insurance.com, and
www.answerfinancial.com
Most insurance companies write auto policies by assigning prospective customers
to a “tier” depending on their driving and credit records. When dealing
with agents, make sure you ask whether you qualify for the best rates companies
offer, and if not, why.
If you have so many accidents or violations that it is difficult for you
to qualify for coverage, you have the right to get insurance through the
state’s “assigned risk” plan (discussed below). Rates in the assigned risk
plan are often three times or more what you’d pay for a “preferred” policy.
Companies’ actual underwriting practices—which drivers get the best rates,
which pay more, and which they won’t insure at all—are not publicly disclosed.
And they may include different factors.
You will want to consider price in relation to the quality of service you
can expect the different companies to provide. Probably the most important
type of service is claims handling. We give you three types of information
to help you evaluate companies’ service: a survey of policyholders, a survey
of auto body shops, and an analysis of complaints. Our Ratings Tables
contain our data on 19 companies or insurance groups rated by 10 or more
respondents in our survey of policyholders.
Our Survey of Policyholders
We surveyed CHECKBOOK and Consumer Reports magazine subscribers and collected
more than 1,100 ratings of individual insurance companies from policyholders
who said they had made an auto insurance claim within the preceding three
years. These consumers rated their companies “inferior,” “adequate,” or
“superior” for “simplicity of claim procedures,” “adequacy of claim payment,”
and other elements of service. Our Ratings Tables show what percentage
of policyholders rated each company “superior” on each of these elements.
As you can see from our Ratings Tables, there are big differences in
how companies were rated by their customers. For example, Amica Mutual,
Auto-Owners, State Auto, and USAA were rated “superior” for “speed of claim
payment” by more than 80 percent of their surveyed customers. In contrast,
AIG, Farmers, and The Hartford received such favorable ratings from fewer
than 65 percent of their surveyed customers. (For a further description
of our policyholder survey and how its results and our other research results
should be interpreted, see our How We Rated the Insurers page.)
Asking the Experts: Auto Body Shops
As a second way to assess service quality, we surveyed area auto body shops,
asking them to name the two insurers they considered “most desirable” for
“treating their customers (car owners) fairly” and the two insurers they
considered “least desirable.”
Our Ratings Tables shows the number of times each company was mentioned
(either favorably or unfavorably) by area shops and the percentage of the
mentions that were favorable. As you can see, American Family and State
Farm were both highly recommended by surveyed body shops. Allstate, GEICO,
Liberty Mutual, and Progressive were often cited as “least desirable.”
It is also worth noting that in each of the seven metropolitan areas where
we publish CHECKBOOK, Progressive consistently was one of the lowest scoring
companies on this measure (see Table 2).
|
| Chubb | 20 | 20 | 100% |
| USAA | 83 | 86 | 97% |
| Country | 13 | 14 | 93% |
| Amica Mutual | 31 | 35 | 89% |
| State Farm | 210 | 240 | 88% |
| Ameriprise/IDS | 5 | 6 | 83% |
| American Family | 18 | 22 | 82% |
| Western National | 4 | 5 | 80% |
| AAA/Auto Club | 17 | 23 | 74% |
| The Hartford | 13 | 19 | 68% |
| AIG | 13 | 20 | 65% |
| Travelers | 11 | 18 | 61% |
| Metropolitan | 10 | 17 | 59% |
| Liberty Mutual | 28 | 55 | 51% |
| GMAC | 2 | 5 | 40% |
| Safeco | 6 | 26 | 23% |
| Allstate | 22 | 120 | 18% |
| Farmers | 14 | 81 | 17% |
| GEICO | 12 | 84 | 14% |
| Allied/Nationwide | 6 | 82 | 7% |
| Progressive | 4 | 234 | 2% |
| Encompass | 0 | 10 | 0% |
Complaints
Another way to assess quality is to count policyholder complaints and to
look at each company’s number of complaints in relation to its volume of
business. While customers might have rated a company less than “superior”
on our survey of policyholders even if the company’s deficiencies were
minor, filing a formal complaint with a government regulatory agency presumably
reflects serious dissatisfaction.
We asked the Minnesota Department of Commerce to provide us with counts
of complaints against auto insurers filed with it during recent years,
but it unfortunately never responded to our requests for information.
On our Ratings Tables, we have reported counts of private passenger
auto insurance complaints filed in 2007 with the Illinois Department of
Insurance. We have also reported a “complaint rate” for each company. The
complaint rate is intended to take into account the fact that some companies
do much more business than others and therefore are more exposed to incurring
complaints. It is calculated as a company’s number of 2007 complaints per
$1 million in 2007 direct private passenger auto insurance premiums written.
There are seven companies for which we do not have a complaint count or
rate. Illinois releases complaint information only for companies with at
least 10 complaints. We assume that the companies for which we don’t have
complaint counts had fewer than 10 complaints. In those cases, we can’t
tell you the complaint rate. So, for those seven companies, we have reported
that the complaint count is “Less than 10.”
The companies listed on our Ratings Tables with the lowest complaint
rates are Country, Progressive, and State Farm, while Allied/Nationwide
and USAA have the highest complaint rates.
If the price is right and service appears satisfactory, your next question
will be whether you can be confident that the insurer will not terminate
your coverage or dramatically raise your rates because of accidents or
traffic violations. Termination by your company at best is inconvenient
and at worst can force you to pay rates hundreds of dollars higher when
you find a new company or enroll in a special plan for high-risk drivers.
There are certain legal restraints on termination in Minnesota—by cancellation
or non-renewal.
With regard to cancellation, the law allows relatively easy termination
during the first 59 days of a policy while a company checks the accuracy
of its policyholders’ applications. Termination is then very difficult
until the end of the “policy period.” Minnesota law allows for termination
only under certain serious conditions, such as non-payment of premium,
misrepresentation, fraud or false claim, failure to report any accidents/violations
that occurred during the last three years, failure to disclose involvement
in a lawsuit or failure to cooperate in a claims investigation, failure
to identify other household members who will be covered, health problems
that affect your driving ability, or changes in your insured auto making
it unsafe.
At the end of the “policy period,” termination (“non-renewal”) is again
relatively easy as long as certain procedures are followed. Under Minnesota
law, a company may non-renew your policy for any of the reasons above.
Other circumstances that allow for non-renewal include failure to provide
underwriting information as requested, termination of the insurer’s contract
with your agent (unless you are over age 65), and accumulation of “points”
(from traffic violations). The insurer may not base your termination or
non-renewal solely on credit report information.
Insurers must follow certain procedures when canceling or non-renewing
a policy. The procedures for termination generally involve sending a notice
to the policyholder at least 30 days before the termination date (10 days
in cases of non-payment or during the initial 59 days of the policy). For
non-renewal, the policyholder must be notified 60 days prior to the non-renewal
date. The policyholder has the right to protest to the state insurance
department and usually to have the termination action held up while the
case is considered.
In fact, except in cases of non-payment of premiums, termination is relatively
rare. Accordingly, we don’t recommend spending more than an extra $100
or $200 per year to have a company with a particularly good record of sticking
by its policyholders through a string of accidents or violations. And you
shouldn’t have to pay even that, since some of the lowest priced companies
get high ratings on our policyholder survey for their termination practices.
On the survey, we asked policyholders who had made claims to rate their
companies on “not unreasonably cutting coverage.” You can see the results
on our Ratings Tables. The table shows the percent of survey respondents
who rated each company “superior” on this question.
Of course, termination by a company is not the only disruption you might
experience. If a company raises your rates dramatically in response to
an accident or violation or two, you may be faced with having to terminate
on your own, or take a big hit to your budget. On our customer survey,
we also asked consumers to rate companies on “not unreasonably raising
premium.” That is the question on which most companies scored lowest. There
was big company-to-company variation, with several companies rated “superior”
by less than 60 percent of their surveyed policyholders.
In shopping, you will want also to be alert to news of a company’s financial
instability. You will not want to sign on with a company that may soon
have to cut many policyholders or raise prices sharply to stay alive. Nor
do you want a company that may go out of business soon, forcing you to
begin your shopping again. This is, of course, more of a concern now than
a few years ago.
On the other hand, there is no reason for great anxiety about insurer stability.
If a company goes bankrupt, policyholders may have to wait to recover money
owed them but generally are protected from major losses. A special “insolvency
guaranty fund” exists in every state with the duty to assess all insurers
doing business in the state on a pro-rata basis to pay off all outstanding
claims of an insolvent company and reimburse each policyholder’s paid-in
premium. In Minnesota, claims reimbursement is limited to $300,000, and
there is no deductible; paid-in premium reimbursement is not subject to
an upper limit or a deductible.
You can check on a company’s financial soundness using any of several sources:
You should be able to find copies of ratings from at least one of these
sources in the reference section of your local library. If you are unable
to find them, or if the ratings in your library are outdated, you can contact
the services directly. All four services will provide ratings over the
phone or on the Web. On the Web, you can learn about the specifics of the
rating criteria each of these sources uses.
Some individuals—usually the young and those with records of accidents
or violations—find it difficult to locate a company that will agree to
insure them.
The only answer if you are one of these “high-risk” individuals is to shop.
Try several of the major groups and ask that you be considered for their
“preferred,” “standard,” or “non-standard” plans. Then try the special
publicly created insurance arrangement—the “assigned risk” plan for Minnesota,
which is the Minnesota Automobile Insurance Plan (MN AIP). The MN AIP is
open to licensed drivers who are unable to get coverage through the regular
market, or who cannot get coverage at rates that do not exceed those of
the MN AIP. Drivers are assigned to regular insurance companies. Each company
is assigned a pro-rata share of policyholders according to its share of
business in the state, and the policyholder pays the same premium no matter
what company he or she is assigned to.
Don’t assume that because you have been turned down by one “preferred”
company you must turn to a high-risk company or the assigned risk plan.
Companies’ standards for accepting new policyholders vary widely and change
from day to day as their rates and volume of business change. To enhance
your chances, remind an agent that you or members of your family have other
business with a company—for instance, a homeowner’s policy or automobile
policies for other drivers. On the other hand, don’t stop shopping even
if you are accepted by a “preferred” company. Sometimes the high-risk companies
or the assigned risk plan offer better rates. If you must join the assigned
risk plan at a very high price, try to get other coverage after a year.
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