MYTH: Your Premium Is Based on Your Risk
HIDDEN TRUTH: Your sensitivity to price can also be a factor
In yet another bid to maximize profits, some insurance companies have begun in the past few years to use a new technique to determine your sensitivity to prices. That way, they can base your premiums not just on your risk profile or credit score but also on the amount you’re willing to tolerate. Called price optimization, the practice—which isn’t allowed in California, Florida, Indiana, Maryland, Ohio, Vermont, and Washington for car insurance—uses data about you and statistical models to gauge how likely you are to shop around for a better price. Will you put up with a $100 increase? Yes? How about $200?
But according to Bob Hunter, director of insurance for the Consumer Federation of America (CFA), who has studied price optimization, those models can also take into account measures that seem to be unrelated to car insurance. They include the number of iPhones and beers you have purchased, or whether you’re sticking with Verizon FiOS when DirectTV might be cheaper. While the CFA believes price optimization to be illegal because it unfairly discriminates, an industry group, the Insurance Information Group, claims that the states that have prohibited it have done so with no evidence that is is a detriment to the market.
Amica Mutual and State Farm told us they don't use price optimization. Representatives from Allstate, Geico, Progressive, and USAA declined to discuss price optimization.
MYTH: You Can Save a Lot by Bundling Car and Home Insurance
HIDDEN TRUTH: The savings can be insignificant
The discount for buying your home insurance from the same company was only $97 per year for our single drivers, nationally, on average. That's about an 8 percent savings.
But the averages ranged from as little as $31 a year in Florida to as much as $240 in Michigan.
MYTH: You’ll Get a Nice Discount if You Buy Anti-Theft Equipment
HIDDEN TRUTH: You’ll save only a few bucks
Average discounts for anti-theft device or measure
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MYTH: You Get a Loyalty Discount for Staying With the Same Company a Long Time
HIDDEN TRUTH: You don't always get a discount
Many companies, including car insurers, reward their most loyal customers with discounts or other incentives. It’s a smart business model. But our study found that while some insurers give a sizable discount, others give a small one, and still others offer nothing at all. Some insurers even salute your allegiance with a price hike.
It is common for consumers to stay with the same insurance company for a long time. Fifty-three percent of Consumer Reports subscribers have stayed put for 15 years or more, according to our most recent survey. But that kind of complacency can cost you. In Washington State, for example, seven of 15 insurers didn’t give a discount to our married couples who had been steadfast customers for at least 15 years, including Amica Mutual and Farmers.
Trusted name brands were no guarantee of anything: In Washington, State Farm Fire & Casualty offered no discount; State Farm Mutual provided $182, or 15 percent in savings. Geico General and Geico Government Employees didn’t offer a discount.
Discounts also varied by state. USAA offered a nice savings of $197 in Kentucky but a meager $14 loyalty discount in Washington, nothing in Colorado and Michigan, and a $28 loyalty penalty in New York.
While Geico Casualty did offer an $888 loyalty discount in New York, just across the state line in New Jersey there was no discount for longtime customers, but there was no penalty either. State Farm Mutual consistently provided discounts of a couple of dollars up to a few hundred dollars.
Correction: An earlier version of this article incorrectly indicated loyalty penalties for customers of Geico Casualty in New Jersey and Washington state, as well as for Allstate Fire and Casualty, and Allstate Property and Casualty. There were no penalties. We’ve amended the text to reflect this.