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Does loyalty pay when it comes to car insurance?

Nick DiUlio

Whether it’s shopping for groceries or garments, customer loyalty often is rewarded. However, new research suggests this isn’t the case when it comes to car insurance – strengthening the notion that policy shopping every few years could yield significant savings.

According to a recent study by the Texas Office of Public Insurance Counsel – government agency that represents consumer interests – the longer a policyholder stays with a car insurance company, the more likely it is that he or she is being overcharged.

Loyalty in the insurance business is not what it used to be,” says Adam Lederman, a personal injury attorney and insurance expert. “Insurance companies don’t necessarily care how long you’ve been a policyholder. In fact, it can sometimes work to your disadvantage.”

Mixed messages on loyalty

According to the Texas study, policyholders who’ve been with the same company for more than eight years could save an average of more than 19 percent on their annual car insurance premiums by switching to another company. With the average car insurance premium for full coverage totaling about $1,000 a year, that could mean saving about $190.

Nonetheless, consumers still seem to think that loyalty carries significant advantages. According to a 2010 report by Deloitte Research, 39 percent of car insurance policyholders said they had been with their carriers for more than 10 years. Furthermore, almost 60 percent of policyholders said they rarely or never shopped for a better deal.

The Texas study cites several possible reasons for this high level of customer retention. For one thing, insurance shopping can be difficult and tedious. And if the same company insures both your car and your home, you need to shop both policies at the same time.

“I think one of the takeaways from this report is that inertia is a very powerful thing,” says Michael Barry, a spokesman for the nonprofit Insurance Information Institute. “It’s sometimes just easier to stay with the same company.”

In addition, several surveys cited in the report suggest that nearly all the major car insurance companies enjoy relatively high satisfaction rates.

“Whatever the reason,” the study says, “high retention is a fact of life and less than 10 percent of consumers say they are likely to switch companies.”

Whether you stay or go, here are three tips to make sure your longtime car insurer is not overcharging you.


1. Shop around.

Ask almost any insurance agent, broker or industry analyst whether it’s a good idea to regularly shop for a new car insurance policy, and you’re going to get a resounding “yes.”

“Insurance is a very competitive industry, and you need to go out and shop different markets every two or three years,” says Bob Freitag, a public insurance adjuster in North Carolina. “I think people are very surprised when they start shopping around and find that they can save quite a bit of money.”

Just because you test the waters every two or three years doesn’t mean you need to switch carriers on a regular basis. Dan Weedin, an insurance consultant in Seattle, says you shouldn’t switch insurers if the monthly premium difference between your current carrier and a new one is only a few dollars.

“Loyalty does mean something to the carrier, and switching at the wrong time can be a hassle when you try to establish a new relationship with a new company,” Weedin says. “The real key to avoiding being ‘overcharged’ is better communication with your agent.”

2. Find a good agent. 

Freitag says independent insurance agents are more likely to value loyalty than those who are tied to one specific company.

“I tell people all the time to find an independent agent,” Freitag says. “They represent many different insurance companies and will inevitably shop for the best deal he or she can get for you.”

Even if you can’t find an independent agent, Weedin recommends going with car insurance companies that sell policies through agents as opposed to those that sell policies directly to online customers. According to Weedin, the agent is more than just a middleman — he’s an advocate who actually cares about long-term customer loyalty.

“If you’re my client, I don’t want the company I represent treating you poorly, because I will lose you as a client,” Weedin says. “If you have an agent who keeps tabs on you and makes sure everything is being done right, the loyalty factor will be there.”

3. Eliminate what you don’t need. 

Loyalty may not be the problem, Barry says. Instead, he suggests that drivers who stay with the same insurance company for many years simply aren’t reviewing their policies as regularly as they should. This means they may be paying for insurance that they no longer need. For example, if you drive a car valued at less than $5,000, you don’t need to carry collision coverage.

The potential downside to switching insurers

Attorney and insurance expert Lederman says switching insurance carriers for a better deal rarely comes with drawbacks. The exception, however, applies to drivers who may have filed a lot of claims in the past or who have racked up a poor driving record.

“If you have a lot of claims or a DWI … , I’d stick with the carrier you have, at least until your record cleans up,” Lederman says.

The (potential) benefit of staying loyal

According to Kevin Lynch, an assistant professor of insurance at The American College in Pennsylvania, one of the newest trends in auto insurance is something called a “vanishing deductible.” Carriers like Nationwide and Allstate provide this incentive to reward consumer loyalty and driver safety by reducing the policy’s deductible for every year a driver goes without filing a claim.

So let’s say you have a deductible of $500 and Allstate offers to reduce it by $100 for every year you don’t file a claim. After five years, you won’t have to pay a deductible at all.

“This is something that the (Texas) study probably didn’t take into account,” Lynch says. “I would say this counts as a reward for loyalty. But other than that, you’re really not seeing significant discounts given to customers just because they’ve been with an insurer for a long time.”

Don’t count on loyalty when filing a claim

According to Weedin, who spent several years as an insurance adjuster, loyalty can be beneficial when filing a car insurance claim, no matter how large or small.

“When a company sees a claim pop up, the benefit of the doubt goes to those who have been loyal,” Weedin says. “Insurance companies look at loyalty from that standpoint very strongly.”

However, according to criminal defense attorney Shane Fischer, loyalty isn’t going to mean anything once you file a claim – and it means even less in court. A claim is a claim, he says, and whether you’ve been a customer for one year or 50 years, the insurance company is going to look at you the same way.

“These big insurance companies don’t care how many years you’ve been making premium payments,” Fischer says. “They may tell you loyalty matters — until you file a claim. Then you’re just like any other customer.”

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