People are becoming more and more concerned about the cost of auto insurance each year, as the cost of insurance continually increases. One of the most common searches in the insurance industry is, "who has the cheapest auto insurance." Like almost every answer in the insurance industry, the answer to this question is, "It depends." Let us look at three factors that help determine the cost of insurance. Then we will see the best way to find the right insurance company for you.
History is such a vital component of insurance costs. Oklahoma was slammed by tornado after tornado after tornado from 2010 to 2013. Many insurance companies like State Farm and Farmers had to replace 90% of their client's roofs two sometimes three times between this span. Their financial reserves are depleted, and many insurance companies could not guarantee that they could cover another storm.
If you live in Oklahoma today, you know that we are constrained to insurance companies because most insurance companies stopped insuring property in Oklahoma. Their claim history was too bad. However, some companies like Safeco saw an opportunity and came into the Oklahoma market in 2013. So this created an unusual situation.
Companies like State Farm and Farmers had to raise their premiums to try and make up the deficit that they lost from 2010-2013. However, Safeco came into the market after the storms hit and did not have any shortage to adjust. Therefore from 2013-2016, they were able to provide insurance cost to their customer at a much lower rate. Situations similar happen nationwide to every insurance company but on a much smaller scale.
Therefore one year Allstate may be cheaper than all the other carriers, but the year after, there is a slight increase to adjust for a deficit, while Liberty Mutual has a price decrease and becomes cheaper.
The second factor to look at is the risk. Remember insurance is not a consumer based product. Insurance companies have the final decision whether or not to insure you and at what cost. This is entirely discretionary.
I do not know any other industry where it is lawful to discriminate, but that is exactly what insurance companies do. They look at what part of town you live in, how many vehicles you drive, how many claims you have had in the past, how many family members are in the family, do you rent or buy. However, the biggest item they look at is your credit score and your payment history!
The type of risk you fall into will then categorize you into which insurance company wants to do business with you. Every insurance provider has a preference. The General likes to offer low-cost low-value insurance to high risk. Chubb Insurance wants high value and wealthy clients that will insure their property for a significant amount.
Moreover, everyone else fits somewhere in between. There is a company for everyone; you just have to find it. Also, they may change from year to year, so the right fit this year may not be the right fit five years from now.
The final factor lies in statistics. Every insurance company hires people called actuaries. These individuals determine risk, calculating the odds of different activities and events. They can tell you the odds of anyone getting in an accident in any situation. As these actuaries calculate different odds, and as actuaries change in the department, the odds tend to change and shift. This will reflect in your insurance rates.
I once talked with an actuary about this very topic where he explained, "People say that they are excellent drivers and have never been in an accident. Moreover, that may be the case, but that does not make them good risks. The odds of someone who drives daily, going their entire life without being involved in an accident is almost non-existent. So where this client may be a good driver, having never been in an accident, they may not be a good RISK. Some actuaries would say that this driver is due to have an accident."
So what do you do as a consumer if the cheapest insurance company changes consistently? Find an independent insurance agent. Independent agents are contracted with multiple insurance companies, not just one carrier. These agents can shop your insurance for you every year. Here is the best part, the insurance company pays them for the business, it does not affect your insurance rates nor are there any additional fees. This frees you up, so you do not have to gather multiple quotes on your own. Moreover, it helps ensure you get the lowest rates.