Auto Insurance Price Optimization: Cost of Being Loyal Policyholder

Car insurance companies are getting smarter in the way they gather information about their policyholders. And they use a lot more details during the process of setting up rates and calculating premiums. Some experts believe that a few insurers have advanced capabilities to laser target their pricing down to per policyholder. In other words, carriers are capable of automobile insurance price optimization.

Getting low auto insurance rates doesn’t only depend on having good driving records and claim history anymore. Other forces may be in play when insurers determine premiums beside the usual discounts and factors that are taken into account. There is a new terminology secretly discussed in the circles of highly informed insurance experts. It is so secret that many experts cannot yet figure out how it works and what information is used. However, they believe that insurers are using a new tool called – Price Optimizing -. They want to charge more to policyholders who will not complain about it.

What is Auto Insurance Price Optimization?

Price optimization is a process of collecting enough information about policyholders to determine whom insurers can charge higher premiums and still sell policies. Premiums are about the only source of income for carriers. And therefore, it is logical to take the steps to increase revenues if it is at all possible. Why not make the most of available information and advanced programming capabilities to predict which policyholders wouldn’t complain about paying a bit more premium?

Widely accepted view is that insurance companies are already using price optimization to make more money out of their loyal policyholders. No doubt it will be highly profitable for them since they will be able to earn more money while incurring hardly any expenses.

Don’t think that this is a farfetched and a bit paranoid thinking and it is only imagination based on distrust. Information gathering has been here for years and well in its advance stage. Furthermore, carriers can almost factor anything in their quote programs with the latest programming skills. Companies are looking into building cars that don’t need drivers. So, it isn’t at all farfetched to think insurers can rip the benefits of vehicle insurance price optimization. You can read Insurance Information Institute (III) findings on price optimization here.

smart car insurance buyerWhere Would They Get their Information?

Companies can look at your credit history and other buying habits now. You cannot believe how much information is publicly available these days. Also, they can find out about your insurance history. Actually, they would have it in their system already if you have been with them for some time. Historical patterns are also reliably used by many companies to predict customer behavior. All they need to do is to plug this information in their Price Optimizing tools and figure out exactly how much more they can charge you without losing the business.

Most state insurance commissioners don’t even know that policyholders are profiled. Anyway, companies are now allowed to include a lot more factors in their rate settings. In addition every firm has their own formula for using credit history details that it is hardly open for discussion. They can charge you more if they want to and they can blame your credit score for it.

Do Car Insurance Companies Profile Policyholders?

There is no question that they have the capabilities to profile their applicants and adjust the premium quotations accordingly. There is no need to be naïve about it. Many companies have millions of customers and if they can charge only few bucks more to some of them this would translate into millions of dollars more profits.

Why would they go into this much trouble rather than increasing automobile insurance prices across the board for everybody? The simple answer is that many motorists would leave them in the first sign of auto insurance premium increase. There are tens of other companies waiting to grab these customers who may be looking for cheaper prices. That is why it is worth investing into solutions that help companies figure out who would leave and who would stick with them after a premium increase.

In other words, car insurance price optimization is an exercise to find the lazy policyholders who cannot be bothered to shop for better rates and switch if they need to. Those are the type of policyholders who will be happy to get 5% loyalty discount, all the while remaining oblivious to the fact that they are charged 20% more than a new customer would pay. 

What to Do If You Believe Your Car Insurance Is too High?

The whole open market economy is built on the idea that customers will look for the best products and prices. Consumers are expected to be well informed and able to make smart decisions for their wallets. They further stipulate that providers with higher prices and lower quality products will either have to improve or face extinction as extensively argued by darwin’s law of natural selection theory.

If you believe that your car insurer is being smart with you, you will need to fight back. You are more likely to be the target of price optimizing if you are with the same company for a long time. They bank on your loyalty so that they can literally bank their profits. You need to find out how much similar companies are going to charge for the same coverage. Make no mistake that the price difference between the cheapest and most expensive insurer in your state can be several times.

That is why it is important to find the most economical car insurance companies in your zip code. Get a few quotes by offering exactly the same details to each company. Then, you know that it is not because you are buying less but it is because you found cheaper providers. If your insurer is still one of the cheapest you know that they are being honest with you and doing their best to offer the best prices. In other words, no funny business of profiling and determining that you are one of the few people they feel they can charge more.

Why Is It Important to Get Vehicle Insurance Quotes at Renewals?

It is very important to stress here that if your premiums are not going down after years of being a good customer, having no claim and traffic tickets, it should be considered as price increase. Simply, you are not getting the discounts you should be getting and this is the same as increasing your price. It doesn’t have to be actual dollar increase for it to be considered a rise in costs.

The only way, you will see your true price is to get a few more quotes and compare them. If another company is offering you way more discounts that means you have been qualifying for them but not getting it. Whichever way you look at you will see that saving money is the same as making money. Discounts qualified are as good as earning checks because you earned it one way or another and it is money.

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