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Price Optimization in Auto Insurance

Ashley Kane

Does It Cost or Save to Be Loyal?

When you think of loyalty, you usually think of positivity. We want loyal dogs, loyal spouses, loyal friends and family. Simply put, loyalty is a good thing.

Even in our consumer lives, loyalty can pay off through various rewards programs. Whether it’s with your local grocery store, favorite coffee shop, or a frequently used airline—loyalty can earn you savings.

Yet, you may be wondering, does it pay to be a loyal car insurance customer? Some terms you might have heard include price optimization and price gouging. What’s the truth? Are you better off shopping around or standing by your long-term car insurance company?

The Facts:

Price Optimization is when a car insurance company raises rates for individuals who are unlikely to switch carriers. Through data mining, they estimate whether or not certain individuals are likely to shop around or simply stick with what they’ve got. If you’re part of the group that isn’t likely to leave, they might raise your rates to make more money.

Sometimes, this leads to price gouging, which is when services or goods are offered at an unfair and unreasonably high price.

Currently, four states have banned the use of price optimization in the car insurance industry. Florida prohibited it most recently in May, following Maryland, Ohio, and California. 

What about the other states? Technically, price optimization is legal in the other forty-six states. That’s why it’s important to be aware of this practice so that you aren’t paying more than you should for car insurance.

Loyalty Discounts:

Most car insurance companies offer loyalty discounts and rewards. After renewing your policy or after being a customer for a certain amount of months or years, you may be offered 10% or 15% discount on your premium. While this may seem like a great deal, you should be aware of how much your rate has already been raised. If your carrier has already raised your rate because their data says you are not as sensitive to price increases, then a 10% discount after a 30% increase may not actually save you anything.

That said, it depends on your situation. Sometimes, there are multi-policy discounts that work well for loyalty rewards, such as discount offerings for married couples.

What Can You Do?

If you want to avoid price optimization, the best thing you can do is shop around. Get auto insurance quotes regularly and compare them to your current premium to determine whether or not your rates have been raised unfairly.

Search for other quotes whenever you see your rates rise, especially if you haven’t had any recent claims or accidents. If you’ve had recent claims, tickets, or accidents, your higher rate may be accounted for.  However, if your driving record has pretty much stayed the same, then a premium increase without warning can be an indicator that you should look around.

You shouldn’t pay more for car insurance because you’re loyal. Stay on top of your premiums and check other carriers to determine that you’re getting the rate and value that’s right for you.