Over the last year, I noticed that my personal insurance carrier had raised my rates, for the third year in a row, with no change in any variable affecting insurability. Now, having been an insurance equity analyst, knowing what their pricing strategy was made me suspect that this might happen. Essentially, the insurer quotes a teaser rate, and slowly grades into the real rate over time, while mentioning loyalty bonuses to long-term clients.
I finally got fed up, and decided to bid out my auto, home, and umbrella coverages. I talked with seven companies, sent them PDF files of my coverages, answered questions about what was not in the PDFs, and now have five bids on my business. At minimum I will cut $500/year off of my premium, and at maximum, $1500/year.
One surprise in the process is that the insurance companies underwrite very differently. I was surprised at how many insurers asked questions that no other company did. What that means to the average consumer, is that it would pay to bid out your personal insurance business every five years or so. You could save a lot.
Those differences in underwriting mean there are potentially opportunities for better rates. The differences in underwriting mean that some insurance company won’t catch one of your most prominent risk factors, and you will get a lower rate.
You might be with your best insurance carrier now, but test it – there might be a better deal for you. Check local and national firms. Try some mutual companies as well as stock companies; the economics sometimes varies. If you tend to go to the name-brand firms with a captive agency force, toss in an independent agent.
And, consider upsizing your deductibles. Insurance works least well when it is used for fixing small problems; it is meant for true disasters. Self-insure the small stuff, and don’t cheat by not having a stash of liquid assets to tap.
As an aside, I do the same thing with health insurance. I have an HSA with a $5000/year deductible. I contribute the maximum each year, and pay health costs out of pocket, never tapping the HSA for healthcare. I get a tax deduction on the money going in, it accrues tax-free, and it comes out tax-free. The tax benefits were so great that I turned down the health coverage from my last firm.
But back to the main point, to summarize: it pays to shop your personal lines insurance every five years or so. The same is true of term life insurance if you are still healthy, every ten years or so. And consider raising your deductibles to a level where the insurance kicks in only if there is real pain.