Inflation affects all of us. And it’s to be expected that it would sooner or later affect your car insurance premiums.
But sometimes it just gets ridiculous. For example, Allstate just announced a 25% rate increase in Georgia. That comes on top of previous rate increases that didn’t capture as much attention.
That’s not a local response to increased crime or fraud rates in a few select Zip codes. The increase comes across-the-hoard, state wide.
The announcement has Georgia’s insurance commissioner, John F. King, hopping mad.
““I am angry and disappointed that Allstate has chosen to exploit a loophole in state law to implement such a substantial increase in costs on hardworking Georgians when families are already struggling with historic inflation everywhere from the gas pump to the grocery store,” said Commissioner King. “This latest increase means Allstate has now bypassed our office to raise overall rates in Georgia by 40% in this calendar year alone.”
The rate increase will apply to new policyholders beginning September 12th, and will hit existing Allstate customers on September 16th.
Take control. Shop around.
Like many household name carriers that do mass market advertising, Allstate is a captive company. Meaning their agents can only write car insurance for Allstate. When your situation changes, or Allstate’s corporate executives decide they want to hike rates by 2 to 4 times the inflation rate, they can’t shop over a dozen competing carriers to find you a better value.
That’s why you should compare insurance rates and policies with an independent car insurance broker who can get quotes from multiple carriers. Otherwise, you only get to play with the House Deck!
You only get the information on discounts, policy options, features, and benefits that they want you to see!
Yes, the roughly 9% inflation rate we’ve seen over the last year or so is going to have an effect. And rates are going up all over the country By an average of about 4-5%, according to data from Bankrate.com.
Shopping around across multiple A-rated carriers is the only way you can be sure to keep your current carrier honest. Competition compels carriers to stay on their toes, and constantly look for ways to maximize the value they provide. Sure, it’s not just about having the lowest premiums. There are other things that are way, way more important than offering the lowest premiums.
Focusing on low premiums to the exclusion of all other considerations is one of the biggest car insurance mistakes people But you also don’t want to be a sucker, either. Keep ’em on their toes! Shop around every so often!
Behind the Allstate Georgia Price Increases
So why is Allstate going for such a big price hike in Georgia?
I suspect it’s because they figure they can get away with it.
A few years back, Allstate came under scrutiny with regulators in California. A class action lawsuit accused Allstate of improperly overcharging California drivers because the company wasn’t fairly pricing premiums based on driver risk. Instead, California’s Insurance Commissioner accused Allstate of improperly engaging in price optimization, based on something called price elasticity of demand.
This latter term is an economics expression for the notion that their customer base was not sensitive to price increases, and that demand would not drop if the carrier increased prices. Allstate was betting that their customer base wouldn’t notice premium increases, or wouldn’t care, because they assumed they were in good hands.
But we know what happens when you assume, don’t we?
The theory goes that Allstate knew that there was price elasticity because their agents are captive, not independent. They’re stuck with Allstate, and Allstate’s pricing. They’re not going to call their customers and say “Hey, let’s do an annual review! Allstate’s changed their pricing, and I think I can find a better deal. Let’s update your profile, and run some quotes from some other carriers.”
They can’t! For a captive agent, there are no other carriers!
and so the company developed what ConsumerWatchdog.org describes as a “sucker’s list:” A list of customers who were affluent “big spenders,” and least likely to respond to price hikes by shopping around for a better deal.
The problem: California made that practice illegal in 2o15, and directed carriers engaged in price optimization to stop, and submit new rate tables.
Allstate response was precious: The company denied ever having used price elasticity to set premiums in California.
But the issue isn’t limited to California. Allstate tried to do the same thing in Maryland, and Maryland regulators put a stop to the practice. So did Georgia. But according to Consumer Watchdog, at least ten other states allow the practice.
Specifically, the Consumer Watchdog investigation found:
● Allstate assumed drivers with a cheap policy were price sensitive, and were likely to shop around for a better deal, People with expensive policies would not.
● Customers who were already paying the highest premiums, (+/- $1,900 every six months) and were due an increase, bore price hikes of up to 20 percent. Customers in this group were more likely to be middle-aged.
● Drivers with cheaper policies who were designated to receive price jumps that were just as big, would only be charged a maximum increase of five percent.
● Seniors were overrepresented among those who should have received discounts but did not receive the discounts they were owed.
The carriers we work with, and that work with independent brokers in general, know they can’t get away with that. Other carriers compete fiercely for their customers – and not just for “good drivers,” either, but for drivers in all risk categories.
In fact, many times, it’s the higher-risk drivers who have the most to gain by regularly shopping around.
What to do now
If you’ve received a notice of premium increase – or you just know it’s coming, here’s what to do: Contact us and let us help you force insurance companies to actually compete for your business. We’ll get quotes from multiple carriers doing business in your area. So you can select the carrier that provides you with the best value.
Meanwhile, here’s a great way for all the rest of you to make yourself more attractive to carriers, and motivate them to offer you a better rate: Work on your credit.
Catch up on any delinquent credit accounts. According to the Fair, Isaac Corporation (the company that runs the most prominent consumer credit scoring system), your on-time payment history is the single most important factor in calculating your credit score. And depending on your state, your credit score is an important factor in how insurance carriers set premiums. You can get an annual report from each of the three major consumer credit bureaus once a year for free by visiting www.annualcreditreport.com.
Once your delinquencies are caught up, start paying down your credit cards. Don’t cancel any accounts. That hurts your score. Just pay down the balances as much as you can easily afford. That will drive down your credit utilization ratio, and will boost your credit score. You should be at no higher than 30% utilization, and ideally at about 7% utilization to maximize your credit score.
For example, State Farm charges customers with poor credit 2.18 times more than they charge customers with average credit, according to a Value Penguin survey. And they aren’t alone.
If you’ve made progress recently on paying off credit cards and making on-time payments, that’s another great reason to contact us, and let us see what carriers will give you the best pricing.
See you on the road!
Steve “Mr. Insurance” Ludwig
CEO, Select Insurance Group