Soaring insurance premiums are causing policyholders to do something they ordinarily don’t: shop around.
Insurance customers typically stay with the same carrier year after year. But double-digit price hikes have done what billions of dollars in advertising could not—prompt people to search for better deals. And they do exist.
Here are four things to know about the home and auto insurance market.
Insurance prices have risen rapidly
The average cost of car insurance has jumped more than 20% in the last year, according to government inflation data. Home insurance premiums are also climbing at double-digit rates, although that may not be as obvious because the cost of home insurance is often lumped into monthly mortgage payments.
Insurance companies say a variety of factors are driving the price increases, including the rising cost of home and auto repairs and increased storm damage tied to climate change. The price increases are hitting policyholders throughout the country, not just in traditionally disaster-prone states like Florida and California.
Andy Palen lives outside Milwaukee. The cost of his homeowners’ insurance policy jumped by $500 last year.
“We hadn’t had any claims or anything like that,” Palen says. “It was a little bit eye-popping.”
Prices vary widely among different insurance carriers
Palen switched to a different insurance carrier after finding he could save several hundred dollars a year.
That’s not unusual. While insurance premiums in general are rising, there is wide variation from one company to another. Customers may end up paying two or three times as much as others in the same zip code, depending on which company they choose.
“It is incredible the difference in pricing between different carriers,” says Kate Ferri Dawson, an independent insurance broker in Murrysville, Pa. “One client alone, we saved $500 a month.”
It pays to shop around, even if customers generally don’t
Typically, once people sign up with an insurance company, inertia sets in, and they don’t switch carriers easily.
“We often, I think, are suckered into the belief that if we change insurance, we might lose our so-called ‘loyalty discount,’” says Doug Heller, director of insurance for the Consumer Federation of America. “Or we’ve bought this insurance but we’ve never had a claim, so we feel like the insurance company wins if we don’t stick with them.”
In fact, he says, “the insurance company wins if we do stick with them and don’t shop around.”
With today’s high premiums, more people are taking that advice. A record 42% of auto insurance customers explored switching carriers in the last twelve months, according to data compiled by LexisNexis Risk Solutions. There’s been a similar rise in shopping for homeowners’ insurance.
“People who’d been with a carrier for 20, 30 years, all of a sudden they’re saying, ‘This has gone up so much, I don’t know if I can really afford this.’ And they’re getting off the couch and shopping,” says Chris Rice, vice president of strategic business intelligence at the firm, which acts as a clearinghouse for the insurance industry.
Heller says when shopping for insurance, people should be careful to compare policies with the same coverage and deductibles. Otherwise, there’s not much difference between the various insurers.
“It’s kind of a plain vanilla product for most of us,” Heller says.
Shopping works, even if you wind up staying put
Comparing policies from different insurance companies can be a good idea, even if you don’t wind up switching carriers.
“Even if you determine you’re with the right company, shopping around helps establish that you’re a shopper,” Heller says, adding that insurance companies are likely to be less aggressive about raising your premium if they think you’re inclined to walk away.
Companies may know you’re thinking of leaving them even before you tell them. That’s because insurers can tap a wide variety of information about policyholders’ shopping habits to determine how price-sensitive they are, including data from third-party vendors about whether someone has gotten competitive insurance quotes. Some states have warned insurers that rates should be based only policyholders’ risk factors — not how likely they are to take their business elsewhere.
Transcript:
MICHEL MARTIN, HOST:
You know, it’s hard to turn on a television these days and not see a commercial for home or auto insurance.
(SOUNDBITE OF MONTAGE)
MELANIE PAXSON: (As character) What are you wearing, Jake from State Farm?
JAKE STONE: (As character) Khakis.
UNIDENTIFIED ACTOR: (As character) I can’t believe how easy it was to save hundreds of dollars on my car insurance with Geico.
DEAN WINTERS: And your cut-rate car insurance might not pay for all of this.
(SOUNDBITE OF GLASS SHATTERING)
WINTERS: So get Allstate and be better protected from mayhem.
MARTIN: Despite this multibillion-dollar campaign for new business, most customers typically stick with the insurance company they already have year after year until now because of double-digit price increases. NPR’s Scott Horsley reports.
SCOTT HORSLEY, BYLINE: Inflation figures show the average car insurance premium jumped more than 22% in the last year. Homeowners premiums are also going up at double-digit rates and not just in the traditional disaster-prone areas, like Florida and California. Andy Palen (ph) lives in a suburb of Milwaukee, but his homeowners policy recently jumped by $500 a year.
ANDY PALEN: We hadn’t had any claims or anything like that, and it was a little bit eye-popping at the time.
HORSLEY: Palen was also beginning to wonder if he was getting the best deal on auto insurance. He’d been with the same carrier for about a dozen years. So he decided to check around.
PALEN: I did, like, I think, what most people do. First you go online, and you start looking around. And I’m like, OK. This was a lot to really take in at the time and really try to figure out what was the right fit for us and our family.
HORSLEY: With some help from a local insurance broker, Palen discovered that by switching insurance companies, he could save several hundred dollars a year. Other customers are having a similar experience. And that’s stirring up the usually placid insurance market.
KATE FERRI DAWSON: I have never seen an increase in shopping to this level really.
HORSLEY: Kate Ferri Dawson is an insurance broker in Murrysville, Pa.
FERRI DAWSON: People are shopping because they’re seeing a dollar amount that looks very different than it did a year ago or two years ago or three years ago.
HORSLEY: Insurance companies say they’ve had to raise premiums to keep up with rising repair costs, as well as increased storm damage tied to climate change. But many customers are not taking these price hikes lying down. LexisNexis Risk Solutions, which acts as a clearinghouse for the insurance industry, says 42% of auto insurance customers have shopped around in the last year, matching a record high. And there’s a similar increase in shopping in the homeowners market. VP Chris Rice says even the most loyal customers are looking for a better deal.
CHRIS RICE: People that have been with a carrier for, like, 20, 30 years and then all of a sudden, they’re like, hey, this has gone up so much. I don’t know if I can really afford this. And they’re getting off the couch and shopping.
HORSLEY: And it pays to shop around because while overall premiums are rising, there’s a lot of variation among the different carriers. Doug Heller, who’s with the Consumer Federation of America, says it’s not uncommon to find one insurance company charging twice as much as another for the very same coverage. And which company is the cheapest can vary from place to place.
DOUG HELLER: If a gas station on one side of the street was charging $3 a gallon, and on the other side, it was $6 a gallon, everybody would line up to get the $3-a-gallon gas. But with auto insurance, people equally go to the $6-a-gallon gas because the shopping is not as easy, and the pricing is not as transparent.
HORSLEY: Shoppers do have to be careful to make sure they’re comparing similar levels of coverage and deductibles. But Heller says after that, they should focus on the price. As much as insurance companies try to differentiate themselves with clever marketing, the coverage is pretty much all the same. After saving hundreds of dollars insuring his Milwaukee area home, Andy Palen is convinced.
PALEN: I would say do your due diligence. Take your time. Shop around. But also understand inflation is playing a role in a lot of different expenses for houses and families. So I would say shop around and see what could work for you and your family.
HORSLEY: Even if you wind up staying with the same carrier, shopping around puts your insurance company on notice. And Heller says insurers tend to save their best deals for customers who’ve made it clear they’re willing to go elsewhere.
Scott Horsley, NPR News, Washington.
(SOUNDBITE OF LINK WRAY’S “RUMBLE”)