Saving money on car insurance
GEICO commercials chant, “Fifteen minutes could save you 15% or more on car insurance.” The Allstate home page asks, “How much could you save? People who switched to Allstate saved an average of $348 per year.” State Farm’s website promises (with one small asterisk) “SAVE $489 when you switch to State Farm.” Progressive counters: “Get a FREE auto quote to see if you could save over $500!” And on and on.
I’m not going to link to these sites, because my point in mentioning this advertising tactic is to discredit it. It’s so frustratingly misleading, I think steam is actually going to pour out of my ears the next time I see a commercial using it.
I understand that any business wants to advertise the idea that it has low prices. But at some point, it becomes unrealistic. Some of the offers I hear imply that if I switched my car insurance to a particular insurance company, the company would be paying me — that’s the only way I could be said to “save” that much money in a year. And what if I switched again after that? If every insurance company saves you hundreds of dollars over every other insurance company, it never ends! We might have just discovered a flawless get-rich-quick scheme!
Of course, that’s not the claim they’re making per se. They’ve carefully phrased the ads to suggest it, but they’re squeaking by false advertising laws with their fine print, asterisks, and minced words. The simple fact is, people who switch from one insurance company to another are most likely going to do it because it saves them money. People who would not save money generally don’t switch. These averages are skewed because the sample is biased. Allstate policies aren’t $348 cheaper than all other policies on average; they’re just cheaper for the people who found that Allstate offered them cheaper policies and decided that switching car insurance was worth the hassle for that savings level. When GEICO says that “New GEICO customers report annual average savings over $500,” they haven’t actually promised that you’d have those savings. And presumably, if you didn’t save by switching, you wouldn’t become a new GEICO customer.
My guess at what’s actually happening? Perhaps different companies have different rates for different groups of people. Single people in their twenties and thirties might be seen as risky by most companies, but safe by one. Older married couples might find much cheaper policies with one or two companies than the rest. Adding a teen driver on your policy might be a much better deal with certain providers. When people in the right category find “their” insurance company, they switch and get big savings. I have no data about whether this is true — just speculating. (Feel free to add your better ideas in the comments.) Naturally, if this is the case, being forthright about it wouldn’t be a good business plan. You need to diversify risk in order to run a functional insurance company. If one or two firms end up with all the teen drivers, you can bet their rates for teen drivers would start to change.
The car insurance companies are trying to get you to associate their average new customer savings rates with their overall affordability level. Don’t let them. Sure, take the basic suggestion and shop around when you’re buying car insurance; look for who’s actually giving you the policy you want at the most affordable price. But as with any advertisement, don’t take all the implications too seriously.
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Different groups get different rates is what you are guessing? How long did it take you to come up with that hypothesis?
Of course different groups get different rates, but it’s not as general or broad as what you are thinking. Credit is a huge factor in car/home insurance rates as well as age and claim history. Thanks for your guess at how to run a successful insurance company when you don’t know a thing about insurance. That’s like me guessing how to build a safe Rocket ship.
Ice cold, Rebecca. Why the hostility? Maybe it has something to do with the fact that you entered the State Farm website as your URL…?
You misrepresented my guess, as well. My point was that a certain group may be seen as very risky by one company but, for some reason, less so by another company. It seems odd to me given that everyone’s trying to model reality, which should mean they are looking at the same statistics for car accidents, etc. — and if bad credit or claim history make you more risky as well, why should that differ company to company?
I don’t know, and if you read a little more carefully you’d have noticed that I didn’t actually claim to know in my post. I’m not trying to tell anyone how to run a successful insurance company. I’m trying to tell consumers not to get duped by your misleading advertisements.