Debunking the Claim: Do New Auto Insurers Always Save You Money?
The promise of significant savings has long been a cornerstone of the auto insurance marketing strategy. Many companies claim they can help you save hundreds of dollars, but does this always translate to reality? In this article, we explore the claims and debunk the myths behind the promises of new insurance providers.
My Journey Into Auto Insurance
I initially switched to a different auto insurance company about eight years ago, partly due to my alignment with their political philosophy rather than business ethics. This change came after the largest auto insurance company in the country had repeatedly announced large price increases for five consecutive years. At that time, my cost for a six-month policy for two cars decreased by a remarkable 50%, from $1000 to $500. This equates to a yearly saving of $1000, and I still manage to pay less than $1000 for my policy on two more valuable cars, and I do not have an agent. Everything is handled online, and when needed, I have to contact a claims center.
The Question of Savings and Switching
When companies tout that "customers saved an average of [x amount] when they switched to MyInsCo!", it raises several critical questions:
How many people actually switch if the new policy costs more than the old one? Logically, if the new quote is higher, there is no savings and thus, no reason to switch. The new insurance company often provides a deep review of the customer's information to determine discounts. However, few take the time to review their policy annually to find additional discounts. As a result, if the new quote is not cheaper, people do not switch, even if they might save just as much with their current insurance. The claim of significant savings often ignores the concept of ongoing re-evaluation of coverage needs. For example, dropping collision coverage on older vehicles can reduce costs significantly.The Role of Brand Recognition and Branding
A prime example of a company that spends heavily on TV commercials is Liberty Mutual. My assessment, based on numerous TV appearances, is that they likely have the highest rates due to the need to recover substantial advertising expenses.
It is not uncommon for a brand to invest millions of dollars in advertising, leading to higher rates. As a result, almost every TV show features their commercials several times. This heavy investment highlights the strategic importance of brand recognition and how it can influence pricing.
The Complex Reality of Market Dynamics
Not all customers are equally likely to switch to a new insurance provider. Various factors come into play, such as:
Price quoted being too high for some customers. The new quote being cheaper, but not enough to induce a switch. Clients already paying higher rates and thus saving more with a new insurer. Customers re-evaluating their coverage needs, such as lowering the coverage for older vehicles to save money. The standard discount for ten new business customers becoming less significant after the first year.People move only if a certain threshold of savings is achieved. Therefore, the savings seen in customers who have switched is derived from a smaller subset of those who have actually made the switch. This simpler and clearer understanding of market dynamics and customer behavior demonstrates that the claims of universal savings are often overhyped.
In conclusion, while switching auto insurers can indeed save you money, it is crucial to approach these promises with a critical eye. Understanding the complexities of insurance pricing and the factors affecting cost can help you make informed decisions and truly benefit from the savings.