Head’s up, Funny Money fans: In honor of the end of summer and start of a new school year, here’s a pop quiz! Our topic? Your automobile insurance.
Question 1: If I have an accident, my auto insurance rate will:
A. Go up
B. Stay the same
Question 2: If I don’t have an accident, my auto insurance rate will:
A. Go up
B. Stay the same
Unless you selected “A” for both answers, you’re not only wrong, but you’d better go shopping for new car insurance now. It turns out that while your favorite auto insurer may have a cute little lizard for a mascot, most insurers are acting like a bunch of snakes.
You've been 'optimized'
The latest sad news on how the financial “services” industry is raiding our wallets comes from the Consumer Federation of America, which found that more and more insurance companies are adopting a practice called “price optimization.” This involves crunching a bunch of data on consumers to find out who will shop around and who won’t. If the numbers say that left-handed Lutheran Dodger fans over 35 won’t be comparing policies, the insurance company jacks up the rates.
So, even if you are an accident-free, careful driver with a clean record, you’re suddenly paying more money for no reason at all. Meanwhile, your neighbor with the exact same driving history and profile won’t get slapped with a rate hike if the computers figure that a sudden undeserved increase would send him or her shopping for a new policy.
“The definition of unfair discrimination is charging two people with the same risk profile a different rate,” says J. Robert Hunter, a former Texas insurance commissioner who’s now director of insurance at the Consumer Federation.
It’s especially unfair because states and auto lenders make insurance mandatory, Hunter adds. “This is for a product that states and lenders require you to buy — this is not optional, it’s not a normal free market. You have to buy it and it’s supposed to be regulated.”
Get it in gear and shop around
No state insurance commission is reining in price optimization, even though 45 percent of big insurance companies already use it and, according to industry analyst Earnix Inc., 52 percent say they will be adding price optimization. But, then again, most state insurance commissions let insurers rack up your rates based on your credit score because, if you paid your Visa bill late one month, you are clearly a menace on the road. That probably has something to do with all the steak dinners insurance lobbyists buy for state insurance commissioners.
So, unless your state insurance officials suddenly turn vegan, you need to do the one thing at which we Americans have always excelled: Go shopping. Hunter says just one hour of insurance shopping can shave as much as $125 per car off your bill.
“Shopping has always been very important, because you can pay double or more if you’re with the wrong company,” Hunter says. “But now, even if you’re with the right company, they’re going to screw you.”
So, just like banks and mortgage companies, insurers aren’t treating us as valued customers, but as just a flock of ignorant turkeys waiting to be plucked. Which brings me to another pop quiz:
Question 1: Insurance companies are:
In this case, unfortunately, there’s no wrong answer.
Brian O’Connor is author of the award-winning book, “The $1,000 Challenge: How One Family Slashed
Its Budget Without Moving Under a Bridge or Living on Government Cheese.”