Save on Home/Auto Insurance
Updated: Jun 8
I'm a former industry insider that owned a home/auto insurance agency. In this article I'm going to walk everyone through HOW insurance rates are calculated. Then we can understand how we can manipulate our insurance rates to our advantage.
Before we get into discussing insurance rates-everyone needs to understand that most insurance companies are exactly the SAME. This rings true as long as they have an "A" ratings from two particular rating organizations. These organizations are the Better Business Bureau and A.M. Best (rating on companies financial health).
The most frustrating question I received from my insurance days was "Hey, who has the best rates" or "Is Geico better than Progressive"?
Those consumers need to realize that each company submits a very specific rating guideline to each state's Department of Insurance every year. These guidelines essentially determine the demographic each company is going to target with better or worse rates. Thusly, a consumer can be placed in a better or worse rating tier based on the company they are receiving quotes from. This is why there is not a one size fits all insurance company for all consumers. Every insurance company simply has a different appetite of consumer.
Therefor, "company A" may offer Jane Doe a better rate where as "Company B" may offer John Smith a better rate because of his different risk profile.
WHEN A POLICY IS WRITTEN WELL---ALL COMPANIES HANDLE CLAIMS PRETTY WELL
Throughout the history of my insurance career- I only had one instance where a company was somewhat difficult in responding to a claim. We resolved the matter by sending a letter from an attorney and the insurance company magically agreed with our point of view.
Please know that if you read insurance company reviews on a consumer review website-you will be scared of every company in existence. Due to my experience, I immediately understand how ridiculous most of these complaints are. They are often left by people that don't start driving when the light turns green.
The worst case scenarios are complaints left by consumers that purchased a weak possibly. Possibly the consumer was being cheap and didn't understand that good companies can also offer poor coverage. Most of these complaints are from consumers that thought they had "full coverage" on their automobile.
The consumer didn't understand that FULL COVERAGE simply means that the driver has all of the coverages-But does not specify how much of each coverage you actually have.
Its also possible the agent wrote a weak policy in order to win their business on price. Then in my opinion the grievance is actually with the agency. However, the insurance company instead takes the brunt of the complaint.
IF INSURANCE COMPANIES ARE ALL THE SAME THEN WHAT IS A DETERMINING FACTOR OTHER THAN PRICE?
The two prime variables are the agent and ease of doing business.
AGENT: The agent actually ought to be a "broker" that knows what he or she is doing. It's important to have a broker because they contract with various insurance companies. They simply take their client's information and shops for their client with their rolodex of insurance companies. This doesn't even cost the client anything. The insurance companies will pay the broker a fee.
A captive agent, think State farm or Allstate, are employees of the insurance company they represent. They can only sell products with only one insurance company. In my opinion the broker is a better option because they hold a fiduciary to their client. If you find a good broker- you can work with them for years with various insurance providers.
I myself use Fenix Risk Management in Alpharetta, Ga. Please know they aren't giving me anything for their mention in this article. I just enjoy doing business with them. Ask for Vik if you reach out.
EASE OF DOING BUSINESS: Insurance companies are massive glutenous corporations that have trouble handling how big they are. Technology is really a varying factor among companies. Some insurance companies are still running programs on MS-DOS. This was software used in the mid-90's! Updates take 48 hours and communication is a mess. Personally, if the cost is the same, choose the provider that has a platform that can accommodate changes automatically.
UNDERSTAND THE INSURANCE SCORE!!! It all starts with your insurance score! The credit score essentially tells insurance companies what tier they need to rate a consumer in.
Most people don't even realize they have an insurance score. Think of an insurance score like a "credit score" for insurance companies. Consumers should want to have their insurance score to be as low as possible. The lower the score, the lower the rates.
LOWER YOUR INSURANCE SCORE TIP #1: Customers actually need to work on raising their credit score. There is a direct correlation between high credit score consumers and a low insurance score. Insurance companies aren't running your credit when conducting quotes- but they 100% have access to a database that is pulling this information. Before shopping around for insurance, run a credit report, see if there is any easy clean up action that can be done. Give 30 days for this to take effect.
LOWER YOUR INSURANCE SCORE TIP #2: Raise your "limits of liability" on your auto coverage. These higher limits give insurance companies a more responsible view of a consumer. Thus, the consumer receives a better rate in the future.
If you are considering to shop around your auto insurance- then raise your "limits of liability" 30 days prior to shopping for quotes. You'll pay an upcharge for those 30 days but your next 6 month quote will be substantially lower.
LOWER YOUR INSURANCE SCORE TIP #3: Try to stay with an insurance company for at least three years before shopping again. Don't freak out over a minimal rate hike. Expect insurance rates to go up over time. When consumers change providers every six months their insurance score keeps rising. Ultimately they are saving pennies and wasting dollars.
INSURANCE SAVINGS TIP #4: This tip doesn't effect your insurance score. However, it is a rather unknown savings tip to consumers. Consumers should always ask for quotes to have an "effective date" for 8 days in the future. This should always be done unless it causes a lapse in coverage. The majority of insurance companies will give an early quote discount for this behavior. Insurance companies believe consumers that receive quotes early in advance are more responsible. So of course they fight over their business.
IN SUMMATION, These insurance tips are pretty in depth. There are more main stream savings tips that any broker will advocate for, and so do I. Everyone should look to bundle both of their home and auto insurance. This is the main saver. If you have any questions about your insurance reach out to VIk Hundal with Fenix Risk Management.
DISCLAIMER: John Lawrence is no longer a licensed property and casualty agent. Please seek a current licensed professional.
John Lawrence is an investment advisor and the owner/founder of J.A. Lawrence Wealth Management, LLC.
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