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Smart Shopping


The key to comparison shopping is to know what insurance coverages you need before you start and then to find out how much those coverages will cost from a number of companies. Comparison shopping takes time but will save you money.

Different companies charge different rates for the same coverage. In a 1989 Vermont Department of Banking, Insurance and Securities survey, premium rates varied as much as 72 percent for identical coverage offered by different companies. A 1991 Colorado Division of Insurance report shows a 200 percent difference in the premium rates charged for identical products.

No one wants to pay more for their auto insurance than they absolutely have to. The only way you can make certain you are not paying too much is to shop around. Find out what different companies charge for identical products and services.

Seek Unbiased Information

Information is available to consumers from a number of unbiased sources. These sources include public libraries, state insurance departments, consumer groups and consumer publications.

Because the insurance industry, like many other industries, has developed many words not commonly used by the average person, consumers may need to find a good glossary or dictionary of insurance terms from the public library.

Consumers may also obtain a wide variety of information from their state insurance department. Most insurance departments publish auto insurance guides that contain information specific to that particular jurisdiction. Every state insurance department has personnel available to answer questions regarding auto insurance coverage.

Many state insurance departments help the citizens of their state to comparison shop by publishing premium comparisons. Premium comparisons survey the insurance companies with regard to their rates for a number of locations and typical drivers. The results of the survey are published for public use. If your insurance department publishes a premium comparison, it can only be used to give you a general idea of rates available in your state. For specific information, you must contact individual companies. However, premium comparisons may help you to narrow your choices of companies you want to call.

Where to Shop

When you begin to contact companies, there are a few things you should know about how insurance companies sell insurance.

Most insurance companies and many producers advertise. Check the newspaper and yellow pages of the telephone directory for companies and producers in your area. In addition, contact your neighbors, relatives and friends for recommendations on insurance companies and producers. Ask them about their experience regarding price and service. In particular ask them what kind of claim service they have received from the companies they recommend.

Consumers often rely on their insurance producer or company to tell them what kind of coverage they need. Insurance producers are paid on a commission basis, which means that the higher the premium, the more money they make. The commission system of producer compensation is a strong incentive for higher premiums. Certainly, competition between producers for business provides some incentive to push down rates lower than other producers but not necessarily the lowest price possible. If consumers want the lowest price possible, they must take responsibility for finding it themselves. Remember, competition only works if the consumer shops for coverage.

Price Quotations

When shopping for auto insurance, premium quotations are a useful tool for comparison of different companies' products. When asking for price quotations, it is crucial that you provide the same information to each producer or company.

To give you an accurate quote the producer or company will usually request the following information:

  • description of your vehicle;
  • its use;
  • your driver's license number;
  • the number of drivers in your household;
  • the coverage's and
  • limits you want.

This information is necessary to the rating process described earlier in this guide.

You should understand that not all insurance companies use insurance producers to sell their product. Insurance companies generally use one of three methods to market their product: direct marketing, independent producers or exclusive producers. The type of marketing method may be good or bad for a consumer, depending on the type of services offered. Therefore, consumers should be aware of each of the three methods and may want to consider them in their purchase decision.

Direct marketers sell insurance through the mail and by telephone. In some cases, consumers can save money with direct marketers because these companies do not have to pay insurance producers commissions to sell their policies. Companies can pass along some of these savings to the consumer. However, some consumers prefer to pay an additional premium for the opportunity to have a local producer available to them.

If you decide to call producers for quotations, ask them how many companies they represent. Independent producers represent several companies, therefore, you can get quotes for more than one company from one producer. This is considered an advantage to many consumers.

If you contact an independent producer, be aware that the companies the producer represents are in competition with one another for business. In an effort to encourage the producer to sell their product, companies may compete by offering higher commissions and incentives to the producer. As a result, insurance companies that use independent producers may have to charge a little extra to pay the producer higher commissions. However, this is not always the case.

Some insurance companies sell coverage through producers that only represent their company. These companies call their producers an exclusive agency force. Exclusive producers can only offer you coverage from the company they represent: therefore, you can only get a quote from one company for each exclusive producer that you talk to.

Sometimes exclusive producers may work for a lower rate of commission than independent producers. This is because companies do not have to give the producer an incentive to write their product over another company's product. The lower commission structure, especially on commissions for renewal business, can represent significant cost savings to the insurance company and often a portion of that savings is passed along to the consumer in lower premiums.

When considering the purchase of an insurance product from an insurance producer, it is advisable to ask what rate of commission the producer is being paid for the sale of the policy. This is not an unfair or personal question. After all you are paying the commission with your premium dollars.

For Your Protection

Once you have selected the insurance coverage's you need and an insurance producer or company, there are steps you can take to make certain you get your money's worth.

Before signing an application for any insurance coverage, call your state insurance department and verify that the company and the producer you are dealing with are licensed in your state. It is illegal for unlicensed insurers to sell insurance. Business cards are not proof of a licensed insurance agent or company. If you do business with an unlicensed producer or company, you have no guarantee that the coverage you pay for will ever be honored.

If you are contacted by an unlicensed producer or company, call your state insurance department immediately so that regulatory action can be taken. By doing so, you may protect someone less knowledgeable than you from being victimized.

You should be aware that an auto insurance policy is a legal contract. It is written so that your rights and responsibilities as well as those of the insurance company are clearly stated. When you purchase auto insurance, you will receive a policy. You should read that policy and make certain you understand its contents. If you have questions about your insurance policy, contact your insurance producer for clarification. If you still have questions, call your state insurance department.