Costly hail storms and other disasters have contributed to a sharp increase in home and auto insurance premiums. A growing number of frustrated insurance customers are now shopping around for more affordable policies.
Patrick T. Fallon/AFP
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Patrick T. Fallon/AFP
Rising insurance premiums are forcing policyholders to do something they usually don’t: shop around.
Insurance customers typically stay with the same carrier year after year. But double-digit price increases have done what billions of dollars in advertising couldn’t — drive people to look for better deals. And they exist.
Here are four things you need to know about the home and auto insurance market.
Insurance prices have risen rapidly
The average cost of car insurance has risen by more than 20% in the last year, according to government inflation data. Home insurance premiums are also rising at double-digit rates, although this may not be as noticeable because the cost of home insurance is often rolled into monthly mortgage payments.
Insurance companies say a number of factors are driving up prices, including the rising cost of home and auto repairs and increased storm damage linked to climate change. Price hikes are hitting policyholders across the country, not just in traditionally disaster-prone states like Florida and California.
Andy Palen lives outside of Milwaukee. The cost of his homeowners insurance policy increased by $500 last year.
“We had no claims or anything like that,” says Palen. “It was a bit of a standout.”
Prices vary widely between different insurance carriers
Palen switched to another insurance company after finding he could save several hundred dollars a year.
This is not unusual. While insurance premiums are generally increasing, there is a large variation from one company to another. Consumers can end up paying two or three times as much as others in the same postcode, depending on the company they choose.
“It’s unbelievable the difference in prices between different carriers,” says Kate Ferri Dawson, an independent insurance broker in Murrysville, Pa. “Just one customer, we saved $500 a month.”
It’s worth shopping 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’re often, I think, lulled into believing that if we change insurance, we might lose the so-called ‘loyalty discount,'” says Doug Heller, director of insurance for the Consumer Federation of America. “Or we bought this insurance but never had a claim, so we feel like the insurance company wins if we don’t stay with them.”
In fact, he says, “the insurance company wins if we stay with them and don’t shop around.”
With today’s high premiums, more people are taking that advice. According to data compiled by LexisNexis Risk Solutions, a record 42% of auto insurance customers explored switching carriers in the past twelve months. There has been a similar increase in purchases of homeowners insurance.
“People who have been with a carrier for 20, 30 years are all of a sudden saying, ‘This has grown so much, I don’t know if I can really afford this.’ And they’re getting off the couch and shopping,” he says. Chris Rice, vice president of strategic business intelligence at the firm, which acts as a clearinghouse for the insurance industry.
Heller says that when shopping for insurance, people should be careful to compare policies with the same coverages and deductibles. Otherwise, there are not many differences between different insurers.
“It’s kind of a plain vanilla product for most of us,” says Heller.
Shopping works, even if you end up staying put
Comparing policies from different insurance companies can be a good idea, even if you don’t end up switching carriers.
“Even if you determine you’re with the right company, buying helps prove you’re a buyer,” Heller says, adding that insurance companies are likely to be less aggressive about raising your premium if they think you’re willing. to leave
Companies may know you’re thinking of leaving them before you even tell them. That’s because insurers can use a variety of information about policy buying habits to determine how price-sensitive they are, including data from third-party vendors about whether someone has received competitive insurance quotes. Some states have warned insurers that rates should be based only on policyholders’ risk factors — not how likely they are to take their business elsewhere.