Buying Auto Insurance Is Usually Hit-or-Miss
Informed consent may finally be coming to the insurance business, but very slowly. According to one industry survey, only 31% of surveyed consumers considered themselves well informed about auto insurance in 1984--an improvement over 1980, when it was 15%, but nothing impressive in a nation where four out of five private cars are insured.
How did they buy that coverage? The survey found that 29% actually shopped around, 27% let an independent agent choose their company and 26% picked a company on the familiarity of its name or the advice of friends or relatives.
Even those who comparison shop seem rather unsure. Most just call local offices of the so-called “direct sellers,” who write 60% of the insurance for private passenger cars-- companies such as State Farm (the biggest), Allstate, the regional auto clubs. These companies have exclusive agents selling their policies alone, usually on commissions of 3% to 20%.
Some companies sell even more directly, replacing local agents with regional numbers (often toll-free) or mail-in forms for further information and price quotes. These may offer the lowest-priced policies.
The highest-priced are usually those sold by “independent” agents who handle a number of carriers, none exclusively, and get higher commissions than direct sellers’ agents. Not that their customers notice: “I had a guy my family had done business with for years,” a recent comparison shopper says. “I just trusted his judgment and the price seemed reasonable, though I had no comparison.”
Many salesmen in this field aren’t selling insurance but price quotes. Most ask phone callers what they want, make little amendment in the customer’s tentative suggestions and call back with an overall price for that coverage alone.
There can, moreover, be many different prices for the same coverage--from consumer to consumer, locale to locale, even agent to agent. Local variations depend on local “loss experience,” which is high in high-crime areas and possibly higher in affluent suburbs such as Beverly Hills. Rates are astronomical there, it’s said, because so many cars are Mercedes and Jaguars, whose fender-benders cost fortunes to repair, and because owners of such cars are more ready to sue.
Differences Among Same Company Agents
With most companies, the young (particularly under 25) pay more than anyone else, being statistically greater risks. Married people pay less than singles, pleasure drivers less than business commuters. Discounts may be given for multiple cars, nonsmokers, senior citizens. State Farm even has “good student” discounts for young drivers with dean’s list grades, because, says Jerry Parsons, State Farm spokesman in Bloomington, Ill., “good students tend to be good drivers.” Indeed, all drivers with good records pay less than those with previous accidents or moving violations, and many companies do “automatically run a review of all applicants through state motor vehicle departments,” Parsons says.
Some people even find differences among agents of the same company, for the same coverage, which shouldn’t happen because rates are mathematically fixed. If it does, it’s probably due to variation in the factors listed on the application, “differences in the agent’s understanding of where they live,” says Gene Boe, Allstate’s sales director in Northbrook, Ill., “or how they drive the car. If, for example, the agent asks how many miles you drive to work, and you say 10 miles, he must clarify whether that means 5 miles to and 5 miles back or 10 miles each way.”
Such errors are harder to catch than simple arithmetic discrepancies revealed at headquarters when applications are checked “to be sure the price is right for the coverage,” Parsons says. One applicant with quotes $900 apart from two offices of the same company ultimately found that the lower-priced agent had simply reduced his requested coverage without telling him.
As it is, comparing prices isn’t easy. Some companies charge annual premiums, some half-yearly. Some offer deductibles in amounts of $250, $500, $750; some only $100, $200, $300. Some lump together bodily injury and property damage liability in one coverage, some split them, each with separate limits.
The biggest problem is that almost all assume some prior knowledge of the coverage wanted. Consumers must present a roster of coverages--commonly those on their existing policies--to get a summary quote or just accept an agent’s sample roster.
Furthermore, except for direct mail companies, whose printed quotations include all gradations of coverage, with prices, most companies offer no price breakdowns or alternative coverages without prodding. “They’d never volunteer anything,” one consumer says, “and when I specifically asked for alternatives, it was grudging.” Then, another says, “they say, ‘Well, you could go lower,’ but they don’t explain the possible consequences if you do.”
Actually, companies want agents “to be insurance counselors , to sell to the need of the customer and to what he wants,” Boe says. Ideally, perhaps they do, but very few consumers seem to know what they want or need, before or after comparison shopping.
