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Here are our main messages on auto insurance, starting with advice on choosing
a company.
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Many consumers will save $500 or more a year by switching auto insurance
companies. Some will save more than $2,500. Our premium comparison table will show you how companies’ rates compared
for several different policyholder types at five different locations.
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On our premium comparison table, companies
that had relatively low rates across all five locations for all or most
policyholders with clean driving records were GEICO, Allstate, and Liberty
Mutual. A few companies with high rates in some areas had some of the best
rates in just one of the three jurisdictions. For example, Travelers was
a winner in Virginia, Liberty Mutual in Maryland, and GEICO in the District.
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You can shop for price without consigning yourself to poor service. Most
companies, even those that are not the standouts for service, seem to provide
most customers satisfactory claims handling and other services. About 95
percent of the policy-holders we surveyed rated all aspects of the claims
services they received at least “adequate.”
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Our Ratings Tables show how companies were rated for claims service
in our survey of policyholders who had filed claims. The companies that
rated highest for their claims service were USAA, Fireman’s Fund, Amica
Mutual, AAA, GEICO, and Erie.
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You will want a company that will stand by you if you have a few accidents
or violations. Our Ratings Tables show substantial differences among
companies. Some companies were rated “inferior” by more than 10 percent
of surveyed policyholders when we asked about “not unreasonably cutting
coverage” and some were rated “inferior” by more than 20 percent of policyholders
when we asked about “not unreasonably raising premiums.”
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You can use our premium comparison table as a starting point in deciding which companies to check for rates, but
be sure to check several companies, since no company wins for all drivers.
You can check rates on many companies’ websites, or you can find agents
in the Yellow Pages.
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You might find it helpful to check premium-comparison websites like insweb.com,
insurance.com, and answerfinancial.com. But be wary of these sites. You
will have to put in time entering information and they will generally give
you rates from only a few companies with which they have business relationships.
On the other hand, we have found that they sometimes identify companies
with very good rates. (At the time we checked, insweb.com was unable to
provide quotes for DC drivers.)
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It makes sense to check competitive rates every few years. Although some
companies tend to be consistent price winners, many companies do change
their ranking substantially over the period of several years.
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When you shop for premiums, you’ll have to push hard to get reliable information.
Agents frequently fail to mention the most attractive available plans and
sometimes quote inaccurate rates for the plans they do offer. Always ask
an agent whether he or she has any other plans with better rates.
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Even if you are an inexperienced driver or have a poor driving record,
you have the right to get insurance with the Maryland Automobile Insurance
Fund or with an “assigned risk” plan in the District or Virginia. But don’t
turn to this “high risk” arrangement quickly. Shop several regular companies.
Keep trying even if you are turned down by the first; each company’s standards
are different and they change continually. Be sure to remind the agent
if you or a family member has insurance for your house or another car with
the agent’s company. If you must join an assigned risk plan, try again
to get regular insurance coverage after a year of good driving. Many of
the policyholders in these plans get out after a year.
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Don’t terminate your insurance with one company until you have arranged
coverage with another. You might even consider starting your new coverage
about 60 days before your old coverage expires because the new company
can reject you fairly easily in the first 60 days of your coverage.
Whatever company you choose, be careful to select just the coverage you
need and to explore any available price breaks based on your driving habits
and other circumstances—
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Consider purchasing a policy with high “deductibles.” By agreeing to pay
small losses out of your own pocket, you can avoid paying the company to
do a lot of paperwork. You may not want to collect from the company on
losses of less than $500 or so anyway—for fear the company will refuse
to renew your policy or will raise your rates.
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Consider dropping collision coverage when your car’s value drops to a level
that you could lose totally without serious disruption to your life. Although
your company would not pay you much for the loss of an old car, it won’t
continue to lower your rates significantly once the car’s value drops below
a few thousand dollars.
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Try to take at least as high dollar limits on the coverage that protects
you if you are a victim of an uninsured motorist as you take on the coverage
you buy to pay other people’s claims. Increased limits on “uninsured motorist”
coverage cost relatively little.
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Before purchasing more than $2,000 or so in “medical payments” coverage
or personal injury protection (PIP) coverage, consider whether you could
spend the money more wisely improving your family’s general health insurance
or disability coverages.
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Keep your agent or broker informed of any change in your circumstances
if that change might make you eligible for a premium discount under your
company’s rating plan. Be sure to inquire about price breaks if—
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You have, or will consider, other insurance with the same company (homeowners,
for example);
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More than one car is insured by the same company;
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No one in the family has had a serious accident or traffic violation in
the past three, four, or five years;
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You drive a car less than 12,000 miles or, better still, less than 7,500
miles each year;
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Your car is parked in a garage or off the street;
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Your car has air bags, anti-lock brakes, or antitheft devices;
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Your car is not used to commute to work or for business;
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Your commute is short, or you work less than a five-day work week;
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You are a member of a car pool;
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You are driving a relatively inexpensive car and/or one with a relatively
good “loss experience” (the loss experience reflects how frequently a car
is involved in accidents and how much it costs to repair if it is damaged);
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You’ve moved to a less urbanized area;
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You are insuring no regular driver under 25 years old;
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Insured drivers under 25 have completed driver training, have good grades,
are students at a school over 100 miles away, or are restricted to a less
expensive car;
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You are 55 or over and have completed a defensive driving class within
the last three years;
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You are a nonsmoker.
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Consider the cost of insurance along with the cost of gas and parking when
you are deciding how to commute to work. A car pool or public transportation
might save you $250 or more in insurance per year.
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Consider the cost of insurance when you are buying a new or used car. Most
companies have discounts (or surcharges) on certain makes and models of
cars based on the loss experience of each car. For one company we checked,
vehicle-to-vehicle differences in premiums exceeded $300; for another,
the differences exceeded $1,000.
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Maintain a strong credit record. Insurance companies may use information
on your bill-paying habits as a factor in setting premiums. A bad credit
record might cost you $500 or more per year in higher insurance premiums.
You pay dearly for auto insurance. Be sure you get what you have coming
if you have a claim.
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Report claims promptly. But don’t sign any settlement until all your bills
are in or you know definitely how much you have lost. For auto body repairs,
insist on using a repair shop you can trust—as long as it charges reasonable
rates.
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Be sure not to overlook available claims. For example, your “medical payments”
coverage might pay for the deductible amount under your health insurance.
Also, you can claim under your comprehensive coverage for some losses that
are often overlooked—such as accidentally damaged upholstery.
For one illustrative Bethesda couple for whom we shopped, annual premiums
for basic automobile insurance coverage would range from $962 with Progressive
to $2,073 with State Farm—a difference of more than $1,000 between two
of the state’s larger auto insurers. In the District, the difference between
two of the largest insurers is even bigger. That same couple might pay
$1,865 with GEICO or $3,726 with Nationwide—a difference of more than $1,800.
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
rate-comparison websites and websites maintained by many of the companies.
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 tables 2, 3, and 4, 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 cost. You
must decide among a broad range of available auto insurance coverage options.
When you injure someone else or 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. 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.
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 assures financial
relief for anyone you may injure, District, Maryland, and Virginia laws
either require or encourage you to buy at least a minimum level of liability
insurance. Maryland requires you to have 20/40/15 coverage in order to
register your car and keep your driver’s license. You are required to have
at least 25/50/10 coverage in the District. Virginia takes a more roundabout
approach. Its law lets you drive without insurance, but if you cause an
accident and cannot pay the court’s judgment, your license will be suspended
until you prove your ability to pay for any future accidents. You can show
this ability by presenting a certificate from an insurance company stating
that you have liability coverage to at least the 25/50/20 level. Virginia
also toughens up the incentive for you to get insurance before you have
an accident by requiring you to pay a special fee of $500 to register any
uninsured vehicle.
If you are considering driving without liability insurance, you should
realize that once you have driven without insurance and have had an accident,
you may be treated by the insurance industry as a person who takes risks;
you may have to purchase insurance at a higher rate or under an “assigned
risk” plan.
Most drivers buy liability insurance even when it is not required 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.
If you are prepared to pay for even a modest 25/50/25 coverage level, the
cost of much fuller coverage may be modest. As this figure shows, a policyholder with 100/300 bodily injury liability coverage
(and $500 collision and comprehensive deductibles) might expect to increase
his or her total annual premium by only about four percent by moving up
to 250/500 coverage and might expect to save only about eight percent by
moving down to 25/50 coverage.
You may also want to consider “umbrella” liability coverage. Although the
terms of such coverage vary from company to company, umbrella policies
generally take over above your basic auto and homeowners liability insurance
to cover injuries you might be liable for in connection with your car,
your home, a boat, or other property, and your liability for other injuries
you might cause, for instance, through libel or slander. When you purchase
an umbrella policy, you must first raise the liability limits on your auto
and homeowners policies to the maximum offered by the company.
“Medical payments” coverage, which is offered in Virginia and Maryland
but not in the District, takes care of medical bills if any member of your
family is injured in an auto accident, or your funeral expenses if death
results from such an accident. Whether a family member is driving your
family’s car, driving a rented or borrowed vehicle, riding as a passenger,
or walking and is struck by a car, you can collect these payments. Moreover,
medical payments protect passengers who ride in your car. Most important,
payment is regardless of fault. Limits on the amount of payments are stipulated
in your policy.
Most of the expenses that would be paid by your medical payments coverage
will be paid by your family’s health insurance policy. Since medical payments
coverage is relatively inexpensive, usually less than $50 per year for
a $2,000 limit, it is reasonable to buy a minimal amount of coverage to
fill in possible gaps in your health insurance and to help cover medical
expenses for your passengers who may not have their own health insurance.
But beyond that, you may do better to spend your money on liability insurance
or on a more comprehensive health insurance policy—to protect you and your
family from any disease or injury that might befall you, not merely to
cover those injuries that involve automobiles.
Under District law, car owners have the option of purchasing “personal
injury protection” (PIP) coverage. This coverage pays for medical expenses,
funeral expenses, and lost wages for anyone in your car and for anyone
in your family driving any other car regardless of fault. District car
owners can purchase limits of either $50,000 or $100,000 for medical expenses,
$12,000 or $24,000 for lost wages, and $4,000 for funeral expenses. If
you have a claim under personal injury protection coverage in the District,
you must decide within 60 days of the accident whether you wish to collect
under this coverage. Collecting may bar you from suing another party for
damages. If you collect under personal injury coverage, you can sue only
if you’ve suffered permanent disfigurement or an impairment that significantly
affects your ability to do your usual work or that prevents you from carrying
on your customary daily activities for more than 180 days, or if your personal
injury protection coverage is not enough to cover your medical expenses
and lost wages. Personal injury coverage of $100,000 for medical expenses
and $24,000 for lost wages is likely to cost you about $100 per car per
year.
Maryland requires $2,500 worth of limited PIP, which only covers guest
passengers, pedestrians, and under-16 dependent children. Alternatively
you can choose basic PIP, which covers the driver and over-16 members of
the family also. Basic PIP will cost around $70 for $2,500 of coverage
and $80 for $5,000 of coverage; limited PIP will cost about 60 percent
less. Collecting under this coverage in Maryland does not restrict your
right to sue.
As with medical payments coverage, medical costs that you could collect
from personal injury protection coverage might be available under your
health insurance policy. Furthermore, lost wages might be collectible under
your disability insurance, if you have any. So you might want to pass up
personal injury protection coverage in the District or take only the required
minimum in Maryland. But for many car owners, who may have no disability
insurance and some cost-sharing requirements in their health insurance,
personal injury protection coverage fills important gaps. In addition,
it may be the only protection for your passengers if they have no health
or disability insurance.
“Collision” and “comprehensive” coverage are often referred to jointly
as “physical damage” insurance. They pay for repair or replacement of your
car, regardless of who is at fault. This coverage is not required by state
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 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 physical damage
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 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
this figure. For example, the sample policyholder
for whom we did the calculations in the figure would probably save about 10 percent of his total insurance bill by increasing
his collision deductible from $500 to $1,000 but would add about 17 percent
to his total insurance bill by reducing his collision deductible from $500
to $100.
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 $500 or so. Filing small claims might lead a company not
to renew your coverage or might lead to higher premiums.
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. But despite
mandatory coverage laws, many 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 can turn to your collision
coverage (if you have it) for repairs to your car, to your medical payments
coverage (if you have it) for your medical bills, or to your personal injury
protection coverage (if you have it) for medical bills and lost wages.
But you will need other coverage if your losses exceed these coverages
and to compensate you for “pain and suffering.” “Uninsured/under-insured
motorist” coverage fills this gap if you can show that the other driver
was at fault or was a hit-and-run driver.
Maryland requires un/underinsured motorist coverage at least to the 20/40/15
level. Virginia requires 25/50/20 for those getting insurance at all (remember
you are allowed to drive in Virginia without insurance), and the District
requires uninsured motorist coverage of 25/50/5 (underinsured motorist
coverage is sold separately in the District, and is not required). Minimum
levels of this coverage generally cost less than $70 per car 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 20/40 or 25/50 for the personal injury portion of uninsured/underinsured
motorist coverage to 100/300 will generally be less than $30.
“Towing and road service” coverage will pay not only the costs of towing
but also labor charges for any repairs that can be made on the road. Most
companies offer this coverage for less than $20 per year. Under some policies,
your towing and road service coverage will reimburse you only for $25 per
claim. But for $3 or $4 more per year, you can get coverage 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.
For a small additional premium (usually $30 to $70), some insurers will
broaden your collision or comprehensive coverage to include reimbursement
for required car rental while damages to your car are being repaired. The
reimbursement may be capped at $20 or even less per day, so take a look
at whether this coverage makes sense for you.
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 in the Virginia suburbs might look like the
following:
| Bodily Injury Liability | $100,000 / $300,000 | $285 |
| Property Damage Liability | $50,000 | $270 |
| Medical Payments | $5,000 | $65 |
| Uninsured Motorist Bodily Injury | $100,000/$300,000 | $95 |
| Uninsured Motorist Property Damage | $100,000/$300,000 | $20 |
| Comprehensive | $500 deductible | $65 |
| Collision | $500 deductible | $385 |
| Emergency Road Service | | $20 |
| Rental Reimbursement | $25/day, $750 maximum per claim | $55 |
| Total | $1,260 |
What you’ll pay for insurance depends not only on the coverage limits you
select but also on your driving record; your age, sex, and marital status;
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.
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 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 most accidents per 100 drivers; after age 30, accident
rates are lower and fairly constant right up to age 65; married men generally
have better 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. Their accident frequency may be lower simply because
they tend to drive fewer miles.
Low accident frequencies 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, 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 25 to 29-year-old single males are often the same as for 21 to
24-year-olds. 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, perhaps four to eight 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 25 percent of a family’s premium.
Most companies will also cut premiums 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 than others or have higher
repair costs or medical and legal charges. These differences sometimes
result in auto insurance rates that are twice as high in some areas 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.
This table vehicle-to-vehicle differences for one illustrative
driver we checked. For example, comparable coverage from Liberty Mutual
might cost $1,141 for the Jeep Grand Cherokee we checked and $1,476 for
the BMW X5—a difference of $335 per year. With Progressive the difference
between these two vehicles was $1,328. As you can see from this
table, some types of vehicles (luxury sedans) tend to be relatively
expensive with all insurers and others (minivans) tend to be relatively
inexpensive. On average, our sample driver might expect to pay about $1,615
for typical coverage on a minivan, $1,720 for a mid-size family sedan,
$1,740 for a compact car, $1,870 for an SUV, and $2,070 for a luxury sedan.
The impact of vehicle choice on insurance costs will 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 Center for Auto Safety, 1825 Connecticut Avenue, NW, Suite
330, Washington, DC 20009-5708.
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 five to 10 percent more for coverage—10 to 15 percent
more if the commute is more than 15 miles each way—and more still if the
car is regularly used for business. You might save more than $250 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 is less than, say, 12,000
miles or, better still, 7,500 miles, you might get a further break.
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 reassign you to a higher risk category
(and charge you higher premiums) if you have accidents, whereas any new
company might examine only your driving record in the last three years.
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 file 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 different
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 are beginning to pass
laws designed to protect consumers by limiting the insurance companies’
use of credit data. The laws in the Washington area vary in their strictness.
In the District, currently there are no laws addressing this issue specifically,
although insurers are required to tell you in writing if they will be using
credit reports.
In Virginia, relatively new regulations (in effect January 1, 2004 for
new policies and April 1, 2004 for renewal policies) put some restrictions
on what credit data auto insurers may use, and stipulate that any credit
information that results in an adverse action must be obtained within 90
days of the policy’s effective date. Insurers may not include in the scoring
disputed accounts, inquiries made by insurance companies or those not initiated
by the consumer, accounts coded as medical, mortgage or auto lender inquiries
that are all made within a 30 day period, or the total amount of credit
available to a consumer. Insurers may also make exceptions for consumers
whose credit is negatively affected by certain “catastrophic events” (such
as death of a spouse or serious illness). Insurers must update an insured’s
credit information at least once every three years, or at the request of
the consumer. They also must provide notification and certain other information
to consumers who are subject to adverse decisions based in whole or in
part on credit information.
Maryland has the strictest laws governing credit use. Insurers may not
refuse to underwrite, cancel, refuse to renew, increase the renewal premium,
or require a particular payment plan based in whole or in part on credit.
Insurers may use credit history only in rating a new policy—providing or
removing a discount, or assigning you to a particular tier within the company
or to a particular company within their group. The insurer must tell you
that credit history will be used in rating your new policy, and companies
are restricted in what items they may use. Factors that may not be used
are: anything that is more than five years old; absence of, or inability
to determine, credit history; and the number of inquiries into your credit
history. If the insurer takes an adverse action against you as a result
of your credit, the insurer must review your credit every two years (or
upon your request) and adjust the premium to reflect any improvement. You
also have the right to request a premium quotation that shows you the portion
of the premium that is a result of your credit history. Any discount or
surcharge the insurer gives you must not exceed 40 percent.
The impact of your credit history on the rates you might pay can be dramatic.
For example, when we shopped for insurance for one sample driver with Progressive,
we found a difference of $1,088 in the District and $536 in Virginia between
the rate we were given when we told the company to assume that the driver
had an “average” credit record versus the rate we were given when we gave
the company a Social Security number that it could check to determine that
the driver actually had an excellent credit record.
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 we 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 premium comparison table shows annual
premiums for 11 companies doing business in the District, 13 companies
in Maryland, and 12 companies in Virginia. The listed companies account
for most of the business done in the region. We have listed all companies
for which, at the time we began data-gathering, we had 10 or more ratings
from CHECKBOOK’s survey of policyholders (described here).
The rates on our premium comparison table are rates companies reported to CHECKBOOK, in response to a direct request
for this article. The premiums on our premium comparison table
are the rates that were most current as of early 2004.
Our premium comparison table shows the
premiums reported for five locations in the greater Washington area—one
in the District, two in Maryland, and two in Virginia. The rates are for
four different driver types.
As you can see, the company-to-company rate differences are dramatic—annual
differences of hundreds of dollars in many cases, and several thousand
dollars in some cases. The rates on our premium comparison table
will probably not apply to you exactly; most
readers will differ in location of residence, vehicle usage, vehicle type,
or other ways. In addition, the rates on the table may not in all cases
be strictly comparable, since it is difficult to tie down precisely all
relevant characteristics of the drivers. But the rates give you a good
starting point for your own shopping. Companies with low rates on our premium comparison table
are good 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 Yellow Pages to locate an agent
or broker. You can then ask each agent or broker for a price quotation
for the coverage you want.
Some “independent” brokers or 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 contact their offices or agents directly.
In addition to seeking out companies based on their relative rankings on
our premium comparison table, 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 trusted companies in insurance”
and lists more than 25 participating companies on its website. But Insweb.com
couldn’t provide quotes for DC residents and merely referred consumers
to other insurer’s sites for quotes. When one of our researchers went through
the process of entering the detailed information necessary to get a quote
for a District driver from Insurance.com, the site returned quotes from
only two 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
As you shop, you might find that you don’t qualify for a company’s best
rates if you don’t have a clean driving record. Just ask the agents you
deal with for the best rates for which you qualify.
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 your
state’s “assigned risk” plan (discussed below). Rates in the assigned risk
plans 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 factors other than such obvious matters as age and
accident histories. For example, even if two drivers are the same age and
have the same accident history, which makes them borderline cases for getting
the best rates, one with a poor credit history might not qualify for a
good rate because the company considers credit history as an underwriting
factor while the other who is a homeowner might qualify because the company
looks favorably on homeowners.
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 two types of information
to help you evaluate companies’ service: a survey of policyholders and
an analysis of complaints. Tables 3 and 4 contain our data on 20 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 7,700 ratings of individual insurance companies from policyholders
who said they had filed 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.
At the time of our last full, published report, USAA, AAA, and Amica Mutual
were rated “superior” for “simplicity of claim procedures,” for example,
by more than 80 percent of their surveyed customers. In contrast, several
companies got “superior” ratings from fewer than 55 percent of their surveyed
policyholders. (For a further description of our policyholder survey and
how its results and our other research results should be interpreted, click here.)
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 department of insurance presumably
reflects serious dissatisfaction. On this table,
we have reported counts of private passenger auto insurance complaints
filed in the District and Maryland in 2002, and in Virginia between July
1, 2002 and June 30, 2003.
We have also reported “complaint rates.” The complaint rates are intended
to take into account the fact that some companies do much more business
than others and therefore are more exposed to incurring complaints. In
the District and Maryland, a company’s complaint rate is calculated as
the company’s number of 2002 complaints per million dollars in 2002 direct
private passenger auto insurance premiums written. In Virginia, the complaint
rate is calculated as the company’s number of fiscal year 2002 complaints
per million dollars in calendar year 2002 direct private passenger auto
insurance premiums written.
While we have complaint counts for almost all of the listed companies,
we have complaint rates for only some. DC was only able to provide us with
total private passenger auto insurance premiums written for the top 30
companies. Virginia provided us with complaint data only for the top ten
writers of private passenger automobile insurance coverage.
Some of the companies with relatively large business volume and relatively
low complaint rates are USAA, GEICO, and State Farm.
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 all three jurisdictions.
It is relatively easy in all three places to cancel a policy during the
policy’s first 60 days while a company checks the accuracy of its policyholders’
applications. Termination is then much more difficult. Even at the time
of renewal, there are restraints and certain procedures that must be followed.
In fact, except in cases of nonpayment 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 filed claims to rate their
companies on “not unreasonably cutting coverage.” You can see the results
on our Ratings Tables. The tables show the percent of survey respondents
who rated each company “adequate” or “superior” on these questions. Those
who didn’t rate their companies “adequate” or “superior” rated them “inferior.”
Several companies are rated “inferior” by fewer than three percent of their
surveyed policyholders, but a few of the companies got such low ratings
from more than 10 percent.
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 “inferior”
by more than 20 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.
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 (with some limitations) of an insolvent company and reimburse each
policyholder’s paid-in premium.
You can check on a company’s financial soundness by 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, at no charge. 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 a record 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 “nonstandard” plans. Then try the special publicly
created insurance arrangements—the Maryland Automobile Insurance Fund (MAIF)
or the “assigned risk” plans in the District and Virginia. MAIF is a publicly
created corporation, intended to operate basically like any other insurance
company except that it is required to take on any licensed driver who wants
insurance. The “assigned risk” plans in the District and Virginia are also
required to take on any driver, but they simply assign the drivers 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.
District of Columbia Department of Insurance, Securities, and Banking
810
First Street, NE, Suite 701
Washington, DC 20002
202-727-8000
Maryland Insurance Administration
525 St. Paul Place
Baltimore, MD 21202
410-468-2000
or 1-800-492-6116
Virginia State Corporation Commission, Bureau of Insurance
P.O. Box 1157
Richmond,
VA 23218
804-371-9185 or 1-877-310-6560
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