When it comes to auto insurance, consumers often decide to stick with the same provider for many years in an effort to save some money, since most insurance companies offer loyalty discounts.
When it comes to auto insurance, consumers often decide to stick with the same provider for many years in an effort to save some money, since most insurance companies offer loyalty discounts. But, being loyal to an insurer can have the exact opposite effect, with insurers raising the premiums to policyholders who are not likely to jump ship and take their business elsewhere.
Many insurance companies increase the rates to loyal customers, using a practice called “price optimization”. Price optimization is the practice used by insurance companies when they want to raise their customers’ premiums even though they have no history of accidents. Insurance companies use this technique to determine who is less likely to switch insurers and raise their rates, practically punishing them for staying loyal to the company.
Insurance providers use all sorts of data that have nothing to do with a customer’s risk of accidents, such as what types of products they buy at the grocery store and how often they switch brands, which helps companies determine how likely customers are to jump ship.
The Consumer Federation of America says that about 50% of the largest insurance providers use this method to get more money out of loyal customers. It is considered to be discriminatory in some states, with California, Ohio, Florida and Maryland having laws in place that explicitly prohibit this practice.
However, even though it is illegal in some states, insurance companies continue to use price optimization to raise customers’ rates, who don’t have a lot of options when it comes to taking legal actions after falling victim to this practice. The best way for consumers to prevent their premiums from going up through price optimization is to shop around and never let their providers now that they intend on staying with them for a longer period of time.
Getting as many insurance quotes from different providers as possible and comparing rates offered by different companies is a great way to save on insurance. Consumers who have seen their premium increase without having recent tickets, claims or accidents, should immediately get quotes from other companies and compare them with the rates they are currently paying. It’s recommended that car owners shop around for car insurance every two years, so that they can prevent the carriers they are currently with from charging them higher premiums using price optimization on them.