Study: Insurers Likely to Overcharge Long-Term Customers

A consumer advocate study from Texas “strongly supports” the notions that shopping around for an auto insurance policy can produce savings for a policyholder and that the longer a policyholder stays with a company, the stronger the likelihood they’ll be paying more than they should.

A policyholder who stays with the same company for more than eight years, according to estimates from the study produced by the Office of Public Insurance Counsel (OPIC), could save 19 percent on annual premiums when switching insurers.

“This study supports what we have believed for a long time,” OPIC executive director Deeia Beck said in a statement. “Consumers must shop their policies to ensure they aren’t overpaying for insurance.”

The average policyholder at an insurer for up to two years usually won’t realize any savings from switching, according to OPIC projections, but a policyholder at an insurer between two and three years can see average savings of 5.2 percent. That figure increases with every year a policyholder is at a company, peaking at 19 percent for a customer at an insurer between eight and nine years.

The OPIC notes that customers who insure both their cars and home with the same company may have to insure both with the new company in order to realize those savings.

High Retention Rates Mean Many Customers Could Be Overpaying

Several studies back the fact that insurers hold very high retention rates for their policyholders, which could mean that consumers are missing out on savings.

A July report from J.D. Power and Associates showed a split trend: The portion of consumers shopping for auto coverage hit its lowest point in five years, but those who did shop around switched providers at an all-time high rate.

That study found the average shopper switching their auto coverage carrier saved $359.

A 2010 study from Deloitte found that 4 out of 10 auto policyholders were with their insurer for more than a decade and that 6 out of 10 of policyholders “rarely or never shop their policy for a better deal.”

The OPIC study highlighted several reasons it believed contributed to policyholders’ long stays with an insurer, including how arduous the shopping process can be—especially for those with multiple policy lines—and relatively high satisfaction rates across major insurers.

An Advantage for Shoppers

But when they do shop, consumers have a chance at savings.

A quote comparison generated by OPIC and state regulators showed a large range of auto policy prices, from a high quote of $886 to low quote of $223 for a motorist who wants to get car insurance in Texas from a “middle class ZIP code in north Austin.”

As a result of the high retention rates, fierce competition for the small pool of available consumers leads many insurers to offer deals to attract new business even at a short-term loss, according to OPIC.

But after the initial honeymoon period at the beginning of a policy, rates may slowly start to rise and wipe out the initial savings.

“We encourage all policyholders to frequently test the market by seeking quotes. There is no downside,” OPIC stated in the report. “Even policyholders who have been with a company just a short time can often realize large savings.”

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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