A new car insurance scheme is now being aimed at loyal customers by raising their premiums without reason, according to the Consumer Federation of America.
The scheme differs from previous scams because insurance companies are targeting their most valuable and important customers. Instead of trying to profit off younger, riskier drivers, insurers are looking to squeeze more money out of the people who have remained with the company the longest.
The shift in strategy arose because the majority of people do not shop around for other auto insurance policies. It can be a hassle to compare rates and ask multiple companies for prices when you can just stick with the same company for a long period of time. Insurance companies are now taking advantage of this way of thinking by exploiting customers' commitment to stick around.
Insurance companies use a price optimization model to calculate how much they can increase your rate before you finally decide to take your business elsewhere. Using a variety of factors, including demographics and personal financial data, companies can measure how far you are willing to bend as they raise your rates. The method is designed to increase your monthly premiums, despite being accident-free, to the highest dollar amount before you will actually leave the company.
"Your insurers may be increasing your premium by far more than your loyalty discount, precisely because you have been so loyal," said Bob Hunter, former insurance commissioner of Texas, according to the Pittsburgh Post-Gazette.
He went on to say that up to 50 percent of insurance companies may utilize this scheme.
Sticking with the same company isn't a matter of loyalty, but rather an issue of customer satisfaction and market value. It doesn't make financial sense to renew your insurance policy without shopping around for better prices.
While the paperwork and pricing may be tedious, you stand to gain more in the long run by having a policy that suits you. Starting your insurance search early can also help to avoid coverage gaps, according to the Department of Motor Vehicles. You should also be aware of potential enrollment and cancelation fees, which might deter you from switching.
To avoid car insurance schemes, you should be aware of the policy you are signing and understand the details of everything involved. Some insurance companies offer bundled insurance so that you can purchase several different types of insurance at a lower rate.
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