Consumers could find less expensive coverage if they switch carriers
Loyalty may be costing drivers in terms of auto insurance premiums. Many consumers opt to stay with their insurance provider because they are provided with certain benefits, such as credit toward insurance payments or discounts on other services. This loyalty may not be as beneficial to consumers as they believe, however, and they could find less expensive auto insurance coverage by switching to another insurer, and this may be a greater benefit than the loyalty rewards they are receiving from their current insurer.
Study suggests that those staying with an insurer for eight or more years could take advantage of lower premiums from other companies
According to a recent study from the Texas Office of Public Insurance Counsel, consumers who stick with the same auto insurance provider for eight years or more could reduce their premiums by an average of 19% by switching to a new insurer. Companies often offer lower premiums in order to attract new customers and compete with other insurance providers. While most insurers provide loyalty rewards for the sake of customer retention, they also increase rates over time, when ends with some policyholders paying more for their coverage than others.
Price optimization may be why loyal customers pay more for auto insurance
Auto insurance companies use many factors to price coverage, such as whether or not a customer has been involved in a car accident. Many insurers use a practice called price optimization, which involves using factors beyond risk to price coverage. One of these factors has to do with how much an insurer thinks consumers will tolerate in terms of price.
Relatively few consumers switch carriers despite lower premiums
Though many consumers could find better coverage for lower prices, relatively few consumers tend to switch companies. A recent survey from J.D. Power found that while auto insurance rates increased by an average of 2.1% last year, and 2.5% in 2013, only a small portion of people switched carriers. Approximately 39% of those surveyed by J.D. Power said that they checked the prices offered by other auto insurance companies, but only a quarter of those shopping around for coverage actually switched.