If You Are a Regular Customer of Auto Insurance, You May Be Paying Too Much
Companies make you think your loyalty is paying off, but that’s not always the case. When it comes to your auto insurance rate, your loyalty can actually work against you. If you haven’t bought insurance for a while, consider doing so now to avoid price optimization .
Price optimization is a practice the insurance industry uses to get more money from customers who are unlikely to shop. According to NPR, they use software that tracks your spending habits, from what you buy at the grocery store to how often you change cable TV providers. They use this data to set your bid. Consumer Federation of America spokesman Bob Hunter told NPR:
A sophisticated algorithm processes this data and produces an index showing how sensitive the customer is to price increases. Only the insurance company knows the index. Customers may see a loyalty discount on their premiums, but Hunter says this may not be what it seems. “They’ll give you a loyalty discount,” says Hunter. “But they’ll give you a 10 percent discount after they raise your rate by 25 percent.”
Basically, if they think you’re not going anywhere, they’ll risk increasing your premium knowing that you’re unlikely to leave. Consumer advocates are working on a solution, but so far there is an easy way to avoid price optimization: seek insurance .
For more information on price optimization, check out the full NPR report at the link below.