Big Data Knows If You’re Comparison Shopping… Or Not

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cheapscore0One of the few benefits of getting older is that my car insurance premiums are much lower today than in my 20s. But is that low rate caused by insurance companies knowing that I recently switched high-speed internet and refinanced my mortgage twice? Via drawpoker of Bogleheads, here’s an NPR article called Being A Loyal Auto Insurance Customer Can Cost You about the practice of “price optimization”.

“Well, it’s really profit maximization,” says Bob Hunter, with the Consumer Federation of America. He says insurance companies can buy software that compiles an astonishing amount of data on everyone who buys almost anything, anywhere.

“They have all the information on what you buy at your grocery store. How many apples, how many beers, how many steaks,” he says. “They have all the information on your house. They have incredible amounts of information on are you staying with DirecTV when Verizon is cheaper.”

A sophisticated algorithm crunches that data and spits out an index showing how sensitive a customer is to price increases. Only the insurance company knows the index.

From a USA Today article on the same topic:

Many insurance companies now use a sophisticated data-mining technique called “price optimization” to set rates just high enough that inertia keeps customers from shopping around. Research found that the longer customers had been with their insurers on average, the greater their savings when they switched, due to all the rate increases they experienced during their loyal years. […]

A 2013 Earnix survey found that 45% of large insurance companies and 26% of all insurance companies in North America currently optimize prices, with an additional 36% of all companies reporting they plan to adopt this technique in the future. What this means is that given two customers with identical risk profiles, the one who’s judged less likely to switch carriers if his rate increases will pay more.

In other words, forget just FICO scores affecting your insurance rates. Your grocery club card, your mortgage quote requests, your switching from cable to DSL, your social media activity, it all could be funneling into some sort of “Frugal Cheapskate” Score. If you don’t shop around elsewhere, you probably won’t shop around for your insurance so they can hike it up without worrying about you jumping ship.

If you want some hints as to where you should start your comparison shopping, you may want to check with your state insurance department. For example, California provides some numbers for your rough situation without needing any personally-identifying information. Here are some numbers for a married couple living in Alameda Country, driving 9k to 16k a year, with no accidents or violations. The lowest average premiums are coming from USAA, Wawanesa, and Anchor General.


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  1. I always get a kick out of car insurance commercials ,where they save you XX% when you switch. I’ve consistently had the lowest insurance rate I can pay, because I shop my business every few years regards of their ads. I wish I could take them at their “word” and reduce my car insurance by XX% because I would hardly be paying anything.

    Makes me think most people get very comfortable with what insurance they have and our the insurance companies are just b.s.-ing us with their savings quotes. Geico is particularly laughable.

  2. Here is link to Arizona Insurance department. I just looked and identified several insurance companies that I will contact for quotes. Many names that I’ve never heard of. Glad to see that my insurance companies are lower price options though.

    Thanks for the article, hopefully I can save some money on home and auto insurance. Clark Howard says to get quotes every 3 years, but you do have to be careful about checking/moving too frequently.

  3. I would advise to stop playing games with the big boys and go independent instead. Less hassle, more savings, and better service.

  4. So how does one evaluate different insurance companies anyway? All I know is that my current one has paid out quickly and without hassle in the few accidents I’ve been in over the years. In the grand scheme of things, that’s pretty important to me. How do I know which companies will actually be on my side when it counts? I think that’s the part that makes me most nervous about switching. I’m generally a reward / rate chaser when it comes to things like credit cards, but can the same strategy be applied to car insurance? I’m sure we can find stellar and horrible customer reviews for just about any company we research, so I’m not really sure that’s a straightforward way to evaluate… Thanks for any tips!

    • That’s a good point, and part of the reason why I still stay with State Farm is my past positive experiences with their claim service. Not sure if there is a reliable way to measure the quality of claim adjustments for insurers.

  5. USAA for home insurance and Wawanesa for car insurance. Been with Wawanesa for 15 years and swear by them as they always get things handled (random stuff like a lawnmower flying out of a truck and hitting my car). We check every year and no other car insurance comes close. We’re talking 10-20% difference at best.

  6. Thanks for the glowing review of Wawanesa, brankar. From their website, it looks like they primarily serve Canada, and maybe some parts of California and Oregon…

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