Comparison shopping for auto insurance can pay off

What if buying a new laptop were like buying auto insurance?

You couldn't simply get a price when you shopped. Instead, each store or website you visited would start by asking you questions - including about things that seem to have nothing to do with your purchase. Then each would offer a quote: $974 at one store, $2,591 at another, and $5,136 at a third - all for the exact same computer.

Sound far-fetched? Probably, since charging twice or five times as much as the competition isn't usually a recipe for business success. But when you strip away the quirky characters and calamity warnings that highlight insurers' pitches, that's pretty much how the auto-insurance market looks. Those starkly different prices are real premiums quoted for a sample Montgomery County family by three of Pennsylvania's larger insurers selling a typical annual policy.

There are other factors to weigh when you shop for coverage, such as how well you can expect a carrier to perform if you have a claim. But if price is a prime consideration, you're likely to find the auto-insurance market as opaque and confusing as they come.

That's why a new analysis by the nonprofit Consumers' Checkbook is worth attention - why I'm sharing highlights here today and accepted Checkbook's offer to provide a month's worth of free access to the magazine's website to Inquirer readers (checkbook.org/inquirer).

Checkbook surveyed auto-policy prices in Philadelphia's market and six other large metro areas it serves. Everywhere it looked, it found dramatic differences were the norm, not the exception.

Why? One reason is that auto insurance has become hugely complex. Companies that once centered rates on drivers' records - accidents, violations, years behind the wheel - have found that other factors, such as credit scores, education, and occupation, are at least as valuable in predicting the likelihood that a policyholder will make a claim.

That can have indirect consequences, such as higher premiums for the less well off - one reason California has banned the use of credit in auto rates. But there's no question the criteria reflect insurers' experiences - for instance, that executives, managers, and college grads are less likely to make claims.

To a consumer, the biggest challenge may be that pricing is a black box: The insurer enters a lot of data about you - or gets it from elsewhere, such as the Comprehensive Loss Underwriting Exchange (CLUE), a commercial database that tracks consumers' insurance histories. Then, out pops a price.

Behind the scenes, the insurer is applying a complex calculus that takes into account everything from your zip code and daily mileage to factors you've probably never even heard about.

The wrong answer can raise your rate on a premium formula, or prompt an underwriter to shunt you to a subsidiary that handles riskier customers. Virtually every carrier now operates multiple companies - one way they sidestep rules requiring disclosure of how they set rates.

Did you save money several years ago by accepting a state minimum for liability coverage rather than the more common $300,000 limit? Checkbook executive editor Kevin Brasler says that will often disqualify you from an insurer's best rates, because it will see you as someone who takes needless risks.

So what's a consumer to do? If you want to save money, perhaps as much as $1,000 or more a year, the only answer is comparison shopping. That's where Checkbook's data come in - not as a definitive guide, but as a starting point.

Checkbook sought prices directly from insurers, used rates provided to New Jersey regulators for that state's annual survey, and filled in the blanks in Pennsylvania and Delaware using "mystery shoppers" - mostly staff members, such as Brasler, who used their own data to get prices.

Because premiums are so personalized, it's tough to get a fully accurate price on a hypothetical customer. New Jersey's survey, for example, seeks rates for six sample households but doesn't provide insurers any data on the customers' occupations, educations, or credit scores. Nor does Checkbook provide price quotes across a broad range of credit histories or backgrounds. With the staffers as undercover shoppers, all of Checkbook's drivers except a 21-year-old were college graduates with excellent credit.

Checkbook's analysis isn't perfect. Its writers didn't realize, for example, that Pennsylvania's Supreme Court has barred auto insurers from setting premiums based on gender - despite a wealth of data showing that young male drivers are especially risky.

Still, if you see your own family reflected in the profiles, even just in part, it's a great place to begin shopping.

That Montgomery County family? The parents are in their early 40s, each drives about 12,000 miles a year, and they work in managerial jobs. Their only obvious demerit: The husband has a recent traffic ticket. They could pay as little as $974 to Geico, or as much as $2,591 to AAA or $5,136 to Metropolitan - all for the exact same coverage.

Move them to Philadelphia's Fox Chase neighborhood (19111), and their rates climb. Liberty Mutual offers the best deal, $1,632 a year - far better than Allstate's $4,200 and Metropolitan's $8,904.

Does that mean you should shun Metropolitan? Maybe not. For a 34-year-old accident-free woman in Wilmington, it clocks in at $834 a year, beating most of the competition.

It's no surprise the highest quotes go to a sample family that includes a college-age driver. In Lansdale, such families were offered an average annual premium of $3,792, but they could pay as little as $1,695 to Liberty Mutual or as much as $6,057 to Nationwide or $10,942 to Metropolitan.

Why so much variation?

The new approaches to rating risks clearly play a part.

Marshall McKnight, a spokesman for New Jersey's Department of Banking and Insurance, says carriers using education, occupation, or both - including such big advertisers as Liberty Mutual, Geico, and Progressive - had captured more than a third of the state's market since 2004.

But as the Checkbook survey shows, that doesn't mean those carriers will always offer the best prices. In this survey, Progressive hardly stood out.

Brasler's advice? If you haven't shopped in the last two years, pick several insurers and get price quotes. If you see sizable variation, get several more.

Brasler says large price spreads are common in the local-service markets Checkbook typically surveys.

"If businesses know that people don't shop around, they can charge whatever they want to charge," he says.

But they can only charge what the market is willing to bear - and that means you.

So don't just bear it. Check the competition.

215-854-2776 @jeffgelles

www.inquirer.com/consumer