While there are many surprising ways that car insurance companies determine whether to hike your premium, few are as unpalatable as the practice of tracking your behavior.

But that’s exactly what many car insurance companies do. Without your knowledge, insurers mine data about your shopping behavior to uncover trends, such as how many iPhones you've bought, whether you remain a loyal customer of one telecom company when another is offering cheaper service, and how much of an increase you accepted when your car insurance policy was renewed in the past. Then your insurer applies its trade-secret algorithms to predict how much of a price increase you’ll tolerate without quitting the company and shopping for a better deal elsewhere.

The 'Schmo Tax'

The practice is known in the industry as price optimization—but we call it the “schmo tax.” The reason: It exploits consumers who are either unable to shop around or blindly trust the myth that insurance companies reward long-term customer loyalty with discounts.


Some states, though, are beginning to ban the practice. This month, the insurance departments of Pennsylvania, Maine, and the District of Columbia issued bulletins to ban car insurance companies from using price optimization to get away with charging you higher premiums. Stephen Taylor, acting insurance commissioner in Washington, D.C., called the practice “discriminatory." Eric Cioppa, superintendent of insurance in Maine, instructed insurers to inform the state if their rate formulas used non-risk-related factors. "Companies that fail to do so and are later determined to have used price optimization . . . or failed to disclose such use to the Superintendent may be subject to disciplinary action," Cioppa warned.

Earlier this year, the practice was also banned in California, Florida, Indiana, Maryland, Ohio, Vermont, and Washington. But it’s still open season on drivers in 41 other states.

The get-tough policies by state insurance departments comes two years after Bob Hunter, director of insurance at the Consumer Federation of America and former Texas insurance commissioner, led the charge to alert regulators that insurers had quietly started using the practice.

Our recent special report, "The Truth About Car Insurance," found that, while some insurers did offer loyalty discounts to customers who remained with the same company for 15 years, many others did not, while some actually charged a loyalty penalty

Sign our petition to tell regulators and insurers "Price me by how I drive, not by who you think I am." The petitions will go to the National Association of Insurance Commissioners.


Industry Sees No Violation

The insurance industry, however, defends price optimization. "In no way does [price optimization] violate any principals set by state insurance departments," says Robert Hartwig, president of the Insurance Information Institute, or III, an industry-funded organization. Despite the state bans, the III still insists that there is nothing wrong with using price optimization techniques and it says few, if any, consumers have complained about it.

But the bans in nine states and the District of Columbia suggest otherwise. What's more, the industry's penchant for secrecy makes it hard to know the real level of consumer complaints. As we've reported, complex pricing methods and lack of transparency by insurers make it difficult for consumers to know a good deal from a poor one. And since insurers hide their price optimization practices behind claims of trade-secret confidentiality, they obstruct a consumers' ability to complain.

What You Can Do

There are some ways to fight back.

  • Visit TheZebra.com. This website provides premium quotes customized to your profile from 18 to 35 insurance companies serving your state. This site's search engine uses the same independent data source we used to conduct our recent study of car insurance pricing and makes you a smarter consumer. Shop around every couple of years or annually, if possible.
  • Consider applying for insurance at Amica Mutual and State Farm. Both insurers told us they don't use price optimization, while Allstate, Geico, Progressive, and USAA wouldn't discuss the matter. We found that Amica Mutual and State Farm also tend to charge lower premiums.
  • Be a squeaky wheel. Price optimization algorithms think you're a schmo if you don't complain about your policy or price, so be sure to ask why your premium has gone up—whenever it goes up. If you are unhappy with the service you receive, complain.