Shop for Car Insurance Differently

Thanks to the pandemic, how you buy or even shop for car insurance and the coverage you might need has changed. But that’s not all. How you make an accident claim and how insurers use the premiums also have been impacted.

Most of us don’t shop for car insurance every time a premium is due, nor do we look to change policies often. Whether the pandemic keeps you from a daily trek to the office or if you haven’t thought to shop for car insurance lately, it’s time to do some price comparisons.

First, consider six ways the car insurance industry is now different.

How the car insurance industry has changed

You might be surprised at how the game plan for car insurers now stacks up:

•Yes, we’re driving less. Commuters obviously aren’t racking up as many miles when they work from home. But maybe you didn’t realize Americans’ actual mileage driven drastically dropped to almost half of what it was a year ago. So you know you’re not paying for gas, but you likely haven’t gotten rid of your vehicle and all the other associated costs, like car insurance.

• Accidents are down too. Fewer cars on the road translates to fewer accidents, with crashes for the year dropping by about 50% as well. Obviously no one wants to have a car accident, however, insurers stand to benefit the most from the decrease in car accidents – in the form of reduced risk.

• Fewer claims to pay. Fewer accidents means car insurance companies are paying out less in claims. This has given insurers more profit, which is estimated to be about $100 billion, according to Dan Karr, founder and CEO of ValChoice, a service that rates insurance companies.

• Insurers manage claims digitally. Like other industries, car insurers are relying more on apps and digital paperwork. If you have a car accident and need to file a claim, you might take the photos of the damage and use an app to send in your own photos. It used to be an insurer would survey the damage and take photos, fill out the paperwork, look over your claim, and communicate back to you. Now you are doing part of that claim processing, and correspondence is by email, not in person. Logically, apps and digital processing should be faster, require less staff and save money. But your premiums have not likely dropped to reflect this savings.

• Some customers got refunds. To reflect the pandemic’s reduction of driving, several insurers, but not all, have refunded a small portion of car insurance premiums taken in (check with your agent to see if you get a refund). Consumer Federation of America has estimated refunds have been about $7 billion to date.

• Insurers are left with more $ to invest. Insurance companies make money by taking in more money in premiums than they must pay out in claims, and they also invest the premiums paid in before the money is needed to pay a claim. If you’ve paid in five years of premiums and haven’t filed a claim, for example, that money isn’t just setting there waiting for you. So even though there’s been $7 billion refunded to customers this year, insurers essentially reaped a bonus by having fewer claims to pay. The $100 billion that insurers would have paid in claims in a typical year was that much more earmarked for investment coffers.

Time to shop for car insurance differently

Okay, so car insurers may not be charging less, but you can potentially lower your premiums and save money. How should you change your tactics to shop for car insurance now?

First, understand you get a unique insurance rate calculated, because the insurer specifically wants to know how likely you are to have a driving accident and to file a claim that must be paid. This specific rate is determined by the insurers’ “underwriting” process, which generates a “rating” for you. Each insurance company has its proprietary rating system.

Basically the underwriting process looks at the insurer’s risk associated with you, or the driver(s) to be insured. You are typically grouped with other insured drivers having similar risk factors. So the insurer will accept you into its most suitable group or reject your application. Since insurance companies do not have the exact same customer base, your group composition can vary per insurer. This is why quotes from several insurance companies will not be identical.

When insurers calculate a rate for you, it’s based on their costs to carry the risk of insuring you.

What do insurers take into account?

• Driving history – miles driven plus previous accidents, traffic violations, years of experience and age/gender of driver(s)

• Where you live – density of population and vehicles on the roads, propensity of natural disasters and vandalism, typical driving conditions (like weather, rush hours)

• Your credit – a popular determinant that insurers (and car lenders) rely upon regularly

• Type of vehicle – make, model, age, mileage, weight, size, safety features

• Claim frequency for your group – or how often the insurer must pay a claim for drivers in a particular group.

How car insurance costs are calculated

The cost of your insurance premium is based on your state’s minimum requirements for coverage, which is regulated by each state’s insurance commissioner.

When you shop for car insurance, you must be aware of two numbers, or costs to you:

The deductible – This is what you agree to pay – out of your own pocket – before insurance kicks in. The higher amount (deductible) you agree to pay, the less your premiums will cost. Of course, in an accident, you must pay the deductible before insurance pays anything.

The premium – this is what you will pay to get insurance coverage. You might pay an amount monthly, quarterly or annually. You can pay less if you agree to a higher deductible. Your premium cost is based on the underwriting and rating, as well as the types of coverage listed below.

What coverage car insurance usually includes

Your car insurance policy can include these types of coverage:

• Liability. Having liability insurance pays for damage to property or injured passenger(s) if you cause an accident. Most states require this coverage.

• Collision. Having collision insurance pays for damage to your car, whether you caused the accident or not. This is typically optional, but may be required by a lender if you have a car loan.

• Comprehensive. Having comprehensive coverage protects your car from damage other than accidents – like flood, fire, theft, weather disasters, falling trees or flying baseballs, and being vandalized. This type of coverage is typically not required by law.

• Personal injury protection. This is the coverage that pays for medical and rehabilitation costs if you or passengers are injured in an accident.

• Uninsured motorist. This is the coverage that protects you if a driver without adequate insurance (or none) causes an accident.

Some states also have some other types of coverage, so be sure to look at your own state’s requirements.

Coverage limits –This limit is the maximum the insurance company will pay should you file a claim. You can figure the minimum insurance coverage to get a baseline quote. If you want more for any types of coverage, you can get a quote to see how much your premium will increase.

But maybe you want to see how you could pay less to the insurer?

How to lower your car insurance premiums

There are a few ways you might be able to lower your car insurance costs. But be aware that skimping on coverage usually means you are picking up some of the risk of paying out of your own pocket.

Increase your deductible.
Lower your comprehensive as your car ages.
Look at a “low miles” plan – keep mileage under a certain threshold to keep your premium lower.
Consider a usage-based premium – installation of a monitor that collects data about your driving and makes an assessment on how to charge you.

Ways to shop for car insurance

If you want to shop for car insurance, you can start with your state insurance commission, find an independent insurance agent, or begin calling insurance companies in your area. You can also use:

• ValChoice – a free grading tool that rates insurers, allowing consumers to shop for car insurance

• Gabi – an online insurance marketplace that works with several insurers. Quotes are based on your current policy.

• The National Association of Insurance Commissioners (NAIC). This group has tips on how to choose an agent here. The NAIC also publishes a report that lists the “average” and “median” costs as well as a resource guide for consumers.