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The Anatomy of Car Insurance

Posted by Sean | Posted under Cars, Insurance | July 13, 2008

We are always hearing about the huge differences in auto insurance rates.

  • "I just saved a bundle on car insurance"
  • "Save up to $300 by dealing direct."
  • "People who switched saved an average of $353"
  • "Save up to $500 by switching to us."

Then there’s the real world examples of savings at FreeMoneyFinance.com.

Read enough examples and it is clear some people are saving big money by switching. What was less clear to me was why. How can the same driver get wildly different prices? Do the car insurance companies just shake and re-shake a Magic 8 Ball?

I recently stumbled upon a fantastic illustration of car insurance discounts in Missouri. However, regardless of where you live, you might enjoy their analysis:

2008 Missouri Auto Insurer Discounts

It is a market survey of auto insurer discounts, compiled by the MO DIFP.
(Dept. of Insurance Financial Institutions & Professional Registration)

What their tables show is how you can get such big variations in prices.

I have taken the next step and summarized their data in the chart below…

Type of Discount Lowest1 Highest Discounters2 Average3
Multiple Vehicles Insured 1% 30% 9 / 9 12.8%
Auto & Home Insured 1% 20% 8 / 9 11.3%
Accident Free 1% 25% 9 / 9 12.2%
Good Student 4% 25% 8 / 9 16.1%
Automatic Seat Belts 2% 10% 4 / 9 6.5%
Air Bag Driver Side 7% 20% 8 / 9 17.1%
Air Bag Both Sides 10% 40% 8 / 9 25.6%
Anti-Lock Brakes 5% 10% 2 / 9 7.5%
Anti-Theft Device 5% 20% 1 / 9 12.5%
Economy Car 0% 23% 2 / 9 11.3%
Daytime Running Lights 5% 5% 1 / 9 5.0%
Premium Paid in Full 9% 22% 1 / 9 15.5%
Elderly/Retired 10% 13% 2 / 9 10.8%
Defensive Driver Course n/a n/a 0 / 9 n/a

1 the lowest discount, of companies that offer a discount in that category.
2 excludes Safeco, since they did not appear on the table on the bottom.
3 average of the companies with discount (midpoint was used for ranges).

note: some discounts apply to policy components, not the entire policy.
also: not all discounts are applied in the same way across companies.
finally… discounts may be substantially different from state to state.

In summary, the cumulative differences between insurers appears significant. Conversely, without comparing, the odds that anyone’s current company is the lowest-priced option seems small. The only question is if the savings are likely to be worthwhile, and if so, the most effective way to compare prices. In some cases, the state’s insurance website might be a good starting point. (I’ve seen good market surveys in other states, too… see below.) Although ultimately, it comes down to getting multiple quotes, either directly or via the insurance search engines.

* update *
I’m working on compilations of auto insurance resources for all 50 states… with differences in discounts and/or overall pricing (like this post), plus how auto insurance companies use credit scores, and more. To get the research, sign-up for updates to Financial Ramblings via email or RSS.

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  1. Personal Finance Buzz July 14, 2008 9:23 pm

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