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