for the past 10 years, you could be paying
higher premiums than someone with the same
driving history, car and background. Why?
Price optimization.
WHAT IS PRICE OPTIMIZATION?
Price optimization is the practice of charging
higher rates based on the likelihood that a
person will not shop around for a lower price.
Insurers create algorithms based on all kinds of
personal data, including loyalty to other service
providers and shopping behavior, but not your
driving habits. This is a separate formula from
other common auto insurance rate factors like
age, neighborhood, gender and the type of car
you drive.
Factors can run the gamut from your magazine
subscriptions, the number of phones you buy
and your web browsing history. This means a
company’s most loyal customers may be most
affected by this practice.
And while it’s true insurers often have a loyalty
discount, if you’re overcharged by 30%, a 5%
or 10% loyalty discount isn’t worth it, explains
Robert Hunter, director of insurance at the
Consumer Federation of America, a nonprofit
group based in Washington, D.C.
With the average cost of car insurance at $1,
per year in 2019, according to a NerdWallet rate
analysis, price optimization could cost you more
than you think.
For example, Consumer Watchdog, a nonprofit
based in Los Angeles, detailed a recent case
in which Farmers Insurance overcharged its
longtime California customers 4%-13% more
in premiums each year than it should have —
$26 million to $29 million a year in total.