Due to a number of reasons, especially the complexity of auto insurance quotes, the auto insurance market is nowhere near as transparent as markets tend to be generally. When we look to compare prices normally, it may require a little effort but is a fairly easy task generally because all we have to do is compare pricing between competitors at a glance and this usually gives us a pretty good idea of where they stand.
There are two aspects to price shopping, the price itself and how the competing items or services differ qualitatively. If you’re looking to buy a car for instance, you have your budget and then you compare value among different cars which have different features, pros and cons, as well as different prices.
It’s pretty easy to get a quote on a car though, and the asking prices are usually advertised or at least readily available. Comparing prices is the easy part of car shopping and just about every other kind of purchasing, because price is transparent.
Qualitative differences will muddy the water though, and people will pay more for better, or at least the perception of better. How better is defined here may be fairly objective or may be in the eye of the beholder, with people buying designer items for instance which may not be substantially different than items that cost a lot less, but they have decided that this is a benefit to them and are willing to pay the asking price for this addition.
Therefore, the transparency of markets will have the pricing of things of similar quality and desirability fairly close, because if someone prices their offerings too high, they just won’t sell enough because too many people will realize that their price is too high.
Auto insurance does differ qualitatively among providers, but overall functions much more like a commodity, where clients are seeking to be protected against various perils for a monthly or annual fee.
The pricing of auto insurance should be fairly close, all other things being equal, but they are not, and the reason is that this market is not transparent at all.
What Makes Auto Insurance So Murky
A lot of people pay too much and often way too much for their auto insurance, mainly because they are not aware enough of the marketplace. Traditionally, auto insurance was sold by in person agents, where you would visit their place of business and they would sell you the coverage you desired.
These agents relied on things like marketing and word of mouth to build their business, as well as their own personal contacts. A lot of people didn’t realize the great discrepancies between rates, and when they did compare, often ended up quite shocked at how much more a company could charge over another for the same thing.
The way this normally works is that a company may charge whatever the market will bear, but in more transparent markets, the prices of their competitors limits this. This is far less the case with auto insurance though, as their markets are more captive and they can get away with charging more to their clients provided that they are unaware that these prices may not be competitive or even close to it.
One of the things that auto insurance companies have in their favor, and to some extent all insurance as well, is the relative difficulty that is involved in getting a quote. In the past, you could spend quite a bit of time on the phone each time you requested a quote, and while the internet has really helped this, comparison shopping for auto insurance still involves quite a bit of work.
Even getting a quote on the internet takes some time, and even these days, not all companies provide online quotes and you may still need to make some phone calls to get a good enough picture of what’s out there. When you call, you can expect someone who is skilled at selling policies to try to influence your behavior, and this does work to take some people off the path of shopping prior to an adequate market evaluation.
While many prefer things that are quick and easy, neither word describes very well the process of auto insurance shopping. A lot of people still believe that prices among providers are pretty competitive, and they must be close enough to not really make it worth bothering to go to all this trouble, but this is very often not the case at all.
People who are aware of the big differences out there in price will tend to appreciate how worthwhile the effort to shop for a good auto insurance policy actually is, and considering how much people spend on auto insurance, these differences make it well worth your time provided that these price differences are that meaningful to you.
If the potential to save hundreds of dollars a year doesn’t appeal to you because you are wealthy enough that this little wouldn’t be really worth your time, then that’s fine, but a lot of people who this is a meaningful amount of money to do not bother to put the effort into seeking out a better deal on their auto insurance, but they should.
The Process of Auto Insurance Shopping
The first step when looking to purchase auto insurance is to get rid of any assumptions you may have that this is priced pretty closely among competitors. The hardest part is people getting over that and taking the leap into doing some shopping, and once they have taken that first step, they usually come to realize pretty quickly that things are not at all like they may have thought.
There may be some loyalty considerations at work as well, with people dealing with a particular agent or agency for a number of years, where they have gotten good service and may be pretty satisfied, and the threshold of savings that is needed to overcome this will differ. This is a personal choice but what we do need to do is explore what else is out there so we can at least make an informed decision.
If you have access to the internet, as most people do these days, that is a big help, especially in looking to narrow down your choices. You may still need to spend some time doing this the old-fashioned way, making phone calls, especially when you’re ready to enroll, but interacting online can certainly cut down on for the need for this.
There are a number of auto insurance comparison sites and while most of this is directed at people who live in the United States, if you do, this is a good place to get an idea of what companies you should focus on. If you live elsewhere, it pays to at least see if there are some good sites out there which will give you an idea of how prospective auto insurance companies stack up against one another.
From there, many auto insurers offer the ability for you to get an online quote in just a few minutes, by answering a few questions. It is important that you realize that if you don’t answer the questions truthfully and it later is discovered that you did not, this could allow the insurance company to withhold claims, so it pays not to lie.
You may be provided an instant quote or be told that someone will contact you with it. This contact may be electronic, or they may have an agent contact you, and depending on whether you want to bother with this longer process, you can confine your choices to electronic quotes if you wish.
Buying Auto Insurance is Not Just About Price
Before we can get a quote on auto insurance, we first need to decide what coverages we are looking to get, and then compare whatever we decide across several insurers to discover how much this will cost.
If this has us changing our mind about our coverage, we then need to go back and get quotes for the new coverage with all the companies that we are considering. None of this is just for comparative purposes generally, it needs to be about what a specific amount of coverage will cost us, the amount we are seeking.
Prior to buying a certain vehicle, it also makes sense to shop around as far as what the differences in premiums will be for a given vehicle, although if you already have chosen an insurance company in the past that gave you a good deal after comparing, simply comparing the cost of insuring different vehicles with that insurer will often be sufficient.
While price certainly does matter with auto insurance premiums, and may even be the most important thing, it is not the only thing. We still need to look at what is being provided by the insurer, their terms and conditions, as well as their reputation.
Some insurance companies are easier to deal with than others, especially when you look to make a claim, and while many people have the perception that getting claims paid is a simple and easy process, insurance companies do not like paying out money and you can count on their at least doing their due diligence.
It is suggested by many that you check out the number and type of complaints against a prospective insurer, and look to avoid those who do not compare favorably in this regard. The time to discover such things is not when you need their help and they do not act in a manner that you consider to be reasonable.
Most people just auto renew their auto insurance policies, and while that might be fine if the price hasn’t changed too much, if it does rise a fair bit, then it may be time to go shopping again.
The time you spend shopping for auto insurance when needed is usually well worth your time and at the very least you’ll end up with a much better idea of the offers and opportunities out there, even if you don’t end up changing anything.
John’s sensible advice on all matters related to personal finance will have you examining your own life and tweaking it to achieve your financial goals better.