Homework pays off when choosing car insurance

Traffic through downtown St. Paul
A watchdog group concluded that car insurance premiums are increasingly tied to factors such as credit scores and occupation rather than actual driving habits.
Jeffrey Thompson | MPR News 2014

Have you looked at your auto insurance rates recently? Maybe you should.

Rates for the same coverage can vary by hundreds of dollars from company to company. And a carrier may use lots of factors other than your driving record to figure out what to charge you — including whether you're likely to shop around.

Consumer Reports recently analyzed 2 billion auto insurance price quotes for various hypothetical drivers around the country. The watchdog group concluded that premiums are increasingly tied to factors such as credit scores and occupation rather than actual driving habits. And there's a lot of variation in prices.

"You can easily pay double from one company to the next for the exact same coverage. So, it's very important to shop," said Robert Hunter, director of insurance for a separate group, the Consumer Federation of America, who helped with the analysis.

Adam Gordon
Some consumers like Adam Gordon, of St. Paul, are taking steps to keep a lid on their car insurance spending. To earn a discount on his auto coverage Gordon allowed his insurer to install electronic monitors that tracked his driving.
Courtesy of Adam Gordon

With annual premiums for auto insurance sometimes topping $1,000 a year for a vehicle, some consumers like Adam Gordon of St. Paul are taking steps to keep a lid on their outlays. To earn a discount on his auto coverage Gordon allowed his insurer to install electronic monitors that tracked his driving. He stuck with it for five years — from 2006 to 2010.

"I remember it affected my driving habits," he said. "Oh, I need to not to accelerate and decelerate so quickly. I need to watch my speed. My wife, I'd get her on board, too. Almost like it was a game, like gamified driving."

And he won. He recalls he and his wife cut their premiums by 15 to 20 percent.

Gordon stuck with the program until Progressive wasn't interested in monitoring his cars, apparently because the cars were more than 10 years old and not worth much, he figures.

Many insurers now offer double-digit discounts to people willing to have their driving tracked. But some insurers do warn that bad performances can eventually lead to higher rates and drivers may wonder about the accuracy and relevance of what's monitored. Hard braking and fast acceleration, for instance, aren't always bad.

Some drivers put dash cams on their cars as a way to protect against big rate hikes in the event of an accident.

Thomas Kyle of Apple Valley got smashed by another driver who blamed him when a state trooper arrived.

"I informed the trooper I had it all recorded on video and the other driver ended up getting a moving violation," he said. "And my insurance rates weren't affected at all and I didn't have to pay my deductible."

But the insurance industry isn't yet offering discounts for dash cams.

While monitors, shopping and maybe dash cams can help consumers hold down their premiums, there are lots other obvious risk factors insurers use to set those prices: age, gender, driving record, and residence. If you live in a neighborhood with lots of accidents and uninsured drivers, you can expect to pay more.

And then there's what the industry calls "price optimization," which is little more than a gamble. That's raising someone's rates based on a hunch that the customer will simply pay up and not switch insurers.

Minnesota Commerce Commissioner Mike Rothman says he's considering making Minnesota the 15th state to prohibit that practice.

"Price optimization is using inappropriate factors in pricing insurance, using predictive modeling based on consumer habits that go beyond classifying risk," he said.

Those habits could include things like how you've behaved when you've seen price hikes for other goods and services.

Laura Adams, a senior analyst with insuranceQuotes.com, says consumers need to be vigilant about watching their insurance bills and seeking bids.

"If you are not being pro-active to get the best rate, I wouldn't expect that your company is going to be looking after your best interest to get you the lowest rate possible," she said.

Insurance Federation of Minnesota spokesman Mark Kulda acknowledges some insurers in Minnesota use price optimization.

"It's also a practice used by many other industries," he said. "This is not really anything new in the economy. All companies really try to see how much can they charge for their product and what is the most that consumers will bear to pay. And it's no different in the insurance industry."

Critics also object to insurers relying on factors seemingly unrelated to driving risks such as credit scores.

Commerce commissioner Rothman is skeptical about their relevance in pricing insurance. The insurance industry insists that credit scores are an important marker. "It is an absolute fact that the people with the lowest credit scores file the most insurance claims, said Mark Kulda of the Insurance Federation of Minnesota. "And because of that people with a poor credit scores are probably going to get a surcharge."

Kulda says insurers don't get a fully accurate picture of how risky a driver may be because state law allows many speeding tickets to go unreported. He laments that insurers don't get a complete picture of many drivers. For instance, he says many speeding tickets, by state law, are not reported to insurers.

"In certain zones, as long as that ticket is under nine miles over it's never going to show up on your record," he said. "You could have 10 of those and we'd never even know it. That's why insurers want to use more accurate predictors. The ultimate accurate predictor is usage based technology."

Consumers advocates say such monitors can be good tools in assessing risk. But to avoid potentially nasty privacy violations, they want to limit how insurers use driving data that's collected.

Hunter of the Consumer Federation says the insurance industry shouldn't just focus on how someone drives.

"It shouldn't be signaling, 'You need to be better at handling your credit or getting a better job or education,' " he said. "It should be signaling, 'Drive carefully.' "

Hunter says a California program shows pricing based simply on driving experience can make basic insurance affordable to the 10 to 15 percent of drivers now choosing to go without coverage because of the cost of insurance.

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