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.
Absolutely true… good suggestions!!!
We now do this annually (not 5 yrs), especially w/home & auto: have changed carriers in each of last 3 years for reasons you describe. And we’ve had -0- claims on house or vehicles for as long as they keep records.
Health… another story entirely. I am 55, very fit… excellent health. I have had local (very good care… integrity based organization) for some time. They base my premiums on all kinds of data relating to my own specific vitals, and I get steep discount because of that.
The national carriers, not so much… last time I shopped (3+ years ago), they were not interested in the fine point details. Rather, they were grouping me into larger demographic/age groups which disadvantaged me relative to my own health.
Very good advice. However, it seems like you are suggesting one should shop based only on price. For individuals who don’t have your expertise in valuing and modeling the risk of a particular carrier, they need a way to capture that information.
I sent a standard request for quotation to each one. The one place where one should be careful looking at price only is claims service. As someone siad about AIG, “That’s not insurance; that just the right to sue AIG if you have a claim.” So, watch out for companies that are tight with claims payment. Since I have high deductibles, that effect is lessened, but not eliminated.
Sounds reasonable.
David, do you know of an HSA provider with good investment options? For me the opportunity cost of maxing out my HSA contributions is too high. I refuse to invest in expensive active funds when I’m a passive investor. However I suppose if you’re an older investor a cash HSA nest egg would be a good idea.
My HSA is with http://www.hsaadministrators.info/ . They have a fleet of Vanguard funds to invest in.
Thanks! I will check it out.
David:
I run an insurance restoration business. From that vantage I caution about bidding on price only. When you have a loss is not the time for a homeowner to find that the adjuster/insurer won’t pay or won’t pay enough.
One option for homeowner’s insurance is to ask several local insurance restoration companies (like mine) which insurance companies they like best and why. The same tactic might work with auto repair. Maybe talking with your doctor about health insurance.
I was offered a lower price to do flood insurance with my state (NC). I declined and willingly paid more for my private insurer to provide flood insurance. The likelihood of the state not paying or not paying enough or paying very slowly is, in my opinion, far higher than with my private insurer. The extra cost is worth it to me.
I didn’t bid on price only. I have limits for those that are reluctant/slow payers. Besides, my deductibles are so high that if there is a disaster that hits, there is little chance of a claim being denied, because the event will be very big.