Inside the Auto Insurance Industry: Profits, Premiums and that “Flo” Lady
A recent Consumer Reports Special Report on automobile insurance policies found that premium prices are related less to consumers’ driving habits and more to their credit reports. It also found a stupefying variation in premium prices for customers with excellent credit scores and clean driving records. A two-year study of quotes from the top five insurers—Allstate, Progressive, Geico, State Farm and USAA—found that the average Allstate premium was about $750 more than USAA. Progressive, despite its ads touting cheap prices, was only slightly less expensive than Allstate. The report does not include newer or smaller insurers, including the Allstate-backed internet-only Esurance.
Throughout the report, it is clear that insurance companies do their best to hide the factors by which they “score” their insureds: the insurance companies keep their scoring models confidential from the public and also make them so complex that regulators have difficulty monitoring them. In Washington State, the Office of the Insurance Commissioner is charged with protecting the public against unscrupulous insurers. Based on public records, the OIC has less than 300 employees, including administrative staff, who are charged with monitoring these issues and responding to complaints.
The lack of transparency in underwriting is concerning, but each consumer—with some work—can balance cost-savings with good coverage. Consumer Reports’ insurance buying guide does caution consumers that finding a bargain-basement premium may have unintended and costly results; namely, by forcing the repair shop to cut corners or by lowballing repair estimates. Consumers can save money by carefully monitoring and actively working to improve their credit scores, while researching their companies to determine if they routinely refuse to pay just claims. The Consumer Reports’ buying guide is a helpful place to start. Consumers should think critically about their coverage, and, because underwriting changes, should obtain comparison quotes regularly to see if new savings are available.