Auto Insurance Renewals Getting Trickier

autoinsurancePrice Optimization.   These two words are creating some complications for consumers seeking to renew their auto insurance.   You need to understand it before you renew your auto insurance policy….and before you shop for alternatives.    Bob Hunter, of the Consumer Federation of America, recently warned consumers that insurers were changing the way in which they priced insurance.   Rather than set policies based upon actuarial analysis + profit margins,  they were now setting prices based upon what they thought their customers were willing to pay.   As a former actuary and insurance regulator, Hunter was appropriately alarmed.   Here’s what he found.

Half of large auto insurance companies report that they use a technique called “Price Optimization” to increase premiums on certain customers despite no increase in risk associated with those policyholders.   CFA raised concerns that this new pricing practice could lead to illegal discrimination and unfair rates.   Hunter wrote a letter to insurance regulators in a number of states.    He offered his evidence about this new “price optimization” practice that, he asserts, is illegal in those states.    One state regulator,  Dave Jones of California, stated that this practice would be illegal in California and announced that he had initiated an investigation.  Insurers vaguely deny Hunter’s charge using language that suggests that while they may not be using “price optimization”, they are applying “flexible” pricing techniques.

This controversy will privately churn for awhile in the regulatory and insurer offices, as state regulators try to sort out the truth behind the CFA letter.   However, this “scandal” does raise an important point for auto insurance customers;  shopping is more important than ever.    When your auto insurance renews, it is now essential that you comparison shop.   It isn’t difficult.   Many auto insurers offer web-based quote systems that can be filled out in about 10 minutes and provide instant quotes.   Some of the insurance websites we recommend include:  (if you are a Costco member)  (for information about insurer discounts available in your state)

Oddly, consumers appear to be car insurance shopping less than they have in the past.  According to a J.D. Power And Associates 2013 Insurance Shopping Study, the percentage of consumers shopping around for a better deal on auto insurance is at a six-year low. Strangely, this is happening at the same time that a) the number of policy holders being hit with premium hikes is up sharply and b) the dollar amount of those increases spiked.  This, despite the fact that premium increases averaged $153 in 2013, up 35% from $113 a year ago.  So, if your insurance is up for renewal, take an hour out of your day and check out three other insurers.   You will likely be able to save some money and, perhaps, avoid price optimization.

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