I just finished comparison shopping for auto and renter's insurance and the reward for my several hours of effort was a 20% savings. Below I explain both what kind of insurance Marina and I bought and how we comparison shopped.
Finding a Good Company
My first stop was Consumer Reports (CR). I subscribe to their website and I found some great articles on Auto Insurance. As the only source for truly independent consumer information I feel that financially supporting them is one of the smarter moves I have made. Certainly the amount of money their advice has saved me over the years has more than paid for the subscription cost. The article I liked the most was "Car Insurance for Less" from Oct/2002.
CR's favorite website for checking insurance rates is Insweb. Their quote process was relatively painless but the final quotes were close to but didn't beat our current Geico quote. Per CR's recommendation I also checked out State Farm and Esurance. Both gave much higher quotes than Geico's. I then looked at Progressive and was blown away, they gave a quote that was nearly 20% less than Geico's! There was a catch but one I was very happy to live with – Progressive only gives the really low rate if we pay the full amount of the six month insurance up front. Given current interest rates we will make money giving it to Progressive up front then trying to earn interest on it while we pay installments.
Still, saving money wouldn't do us any favors if it turned out that Progressive has lousy service or tries to screw people on coverage. To get an idea for how well they served their customers I followed the link CR provided to find the insurance commissioner for my state where I found a list of all the auto insurance companies who do business in my state along with a rating for how many complaints they get per amount of insurance they provide. Progressive does get more complaints than Geico but not by a whole lot.
Next up was fiscal soundness. What use is an insurance policy from a company that goes bankrupt? I checked Progressive out against the three major credit rating agencies: A.M. Best (A+ or A++), Moody's (Aaa or Aa) and Standard and Poor's (AAA or AA). The entries in parenthesis after each credit rating company's name is the rating that company uses to indicate that the insurance company they are rating has 'outstanding financial health'. Progressive's rating was: A+, Aa2, A+. Two outstanding ratings out of three seems reasonable to me.
Setting Up The Right Policy
There is a ton of information on the various components of an auto insurance policy available in books and on the Internet so I won't repeat it here. The CR article I mentioned before has a concise description of the different types of coverage along with suggestions on how much coverage to get for each. There are three types of coverage that we don't carry on our auto insurance policy – Personal-Injury Protection (PIP)/Medical Payments, Roadside Assistance and Rental Reimbursement. Since both Marina and I are covered by good medical insurance there is no reason for us to get PIP. We are members of the AAA so there is no need to get roadside assistance. Finally, we have two cars and I work from home so we are willing to 'self insure' for rental reimbursement.
I also increased the collision and comprehensive deductibles to the highest possible value we could comfortably live with. It makes a big difference on the cost of insurance. It might seem pyrrhic to use a high deductible, after all, what's the point in having insurance if it doesn't cover the full liability? But we have another form of insurance – an emergency fund. This fund is intended to cover sudden unexpected expenses like losing a job or, for example, one of our cars getting damaged. By having a low deductible and an emergency fund we would effectively be double insuring. So in figuring out how high a deductible we can handle we looked at how much money is in our emergency fund.
One of the nastier bits of auto insurance is the issue of original equipment manufacturer (OEM) parts. If one of our cars is damaged and needs to be repaired we want to use parts provided by the car's original manufacturer so we can make sure that the part will match the quality and safety of the original car. But insurance companies generally don't like OEM parts because they are expensive. Insurance companies, with a few exceptions, will insist on using imitation parts. CR did a study of imitation bumpers and fenders back in 1999 and found that their quality was consistently lower than the OEM parts, sometimes dangerously so even though all the parts they tested were certified by CAPA. CAPA is an organization that tries to certify imitation parts for quality. In some states, including I believe Washington, consumers are not even required to be told when their car is repaired with an imitation rather than an OEM part. Insurance companies also like to require people to use remanufactured parts. These are defective parts that the OEM originally rejected but later tried to repair and now certifies.
The way that insurance companies, including Progressive and GEICO, force people to use imitation or re-manufactured parts is by writing estimates for the repair that assume the use of imitation/re-manufactured parts. If we want to insist on an OEM part then Progressive will insist we pay the difference.
When an insurance company covers a car they only guarantee to repair the car to the condition it was when before it was damaged. So if our 1993 car is damaged the insurance company will argue that they shouldn't have to use a new part (OEM, imitation or re-manufactured) but instead will insist on a salvaged part (e.g. a part removed from a totaled car). Salvaged parts are obviously not as good as new parts but the insurance company will argue that it is in the same condition as our car was before it was damaged and therefore they are meeting their requirement to return the vehicle to its 'original' condition.
It can be hard to tell what the insurance company uses in doing their estimates but the letters LKQ is a sure give away, it means "Like Kind and Quality", e.g. an imitation, re-manufactured or salvaged part.
Insurance companies have been sued a number of times over the last few years about non-OEM parts and some have lost. State Farm in particular lost a billion dollar lawsuit on the subject and now, I'm told, has a policy that if customers ask for OEM parts they will be given OEM parts. Other insurance companies, such as Chubb, always insist on OEM parts. An insurance company's policy on OEM parts are often different on a state by state basis and can change at any time.
I called up Progressive's claim office in Seattle and asked them about their policy. They said that the kind of parts they will consider are based on the age of and miles on the car. In the case of our 1993 and 1994 cars the adjuster told me that these cars would be cleared for every possible part source (e.g. imitation, re-manufactured and salvaged) and they would write the estimate for whatever was cheapest. My only recourse would be to argue that the part they wanted to use didn't match our car's condition. My car in particular has very low mileage because it was low-mileage when I bought it, I used to drive it a few miles to work and for the last few years I've worked out of my home. So I might have a leg to stand on. Even Marina's car has relatively low mileage and both cars have been well maintained with several systems repaired or completely replaced. This gives us a good argument for getting better quality parts.
Progressive's policy makes me unhappy. I will definitely be looking out for another company to switch to. But I'm currently gambling that we'll be able to argue Progressive into using better parts based on the car's condition or in the worst case paying for the difference ourselves. From what I've seen the majority of the cost of repairing a car is labor not parts and that the price difference between OEM and other parts is large but not outrageously so. In effect our insurance coverage is less than what it should be.
Finding a Good Company
It was a lot harder to get renter's (a.k.a. tenant's) insurance quotes than Auto quotes on the Internet. I went to insweb but they just sent me to netQuote and Amica, both of which looked a bit shifty to me. Esurance only covers cars and Progressive doesn't offer renter's insurance. Since I couldn't get good quotes on the net I would have to find quotes myself by contacting companies I was interested in getting quotes from. To figure out which companies I wanted to look into I went back to my state's insurance commissioner's office and looked at their list of the top 50 companies writing homeowner/tenant policies in Washington by revenue. My theory being that a company that does a lot of business in Washington should know the market well. To narrow down the list I arbitrarily choose to only look at companies doing at least $10 million dollars in business whose complaint ratio was below 1. I then took the remaining entries on the list and ran them by the three previously mentioned credit rating agencies. In the end only three companies made it through all of these filters. I also threw in Travelers for old time's sake. The results were:
|Insurance Company||A.M. Best||Moody's||Standard and Poor's|
|Allstate Insurance Group||A+||Aa2||AA|
|Travelers (Standard Fire Insurance Company)||A+||Aa3||A+|
Travelers only got two out of three excellent ratings but I decided to let it slide. Of the four listed companies only State Farm has an online form to give renters insurance estimates and their form isn't sufficiently flexible to describe our situation. So it was time to pick up the phone. State Farm has its own captive agents network so I just called the local office. For Travelers I called up Geico who was the agent for my current policy and also an agent that the Traveler's site directed me to (agents can and do offer discounts so contacting multiple ones can be profitable). For Allstate and Chubb I pulled down a list of their agents and tried to find agents who were on both lists and who employed Chartered Property and Casualty Underwriters (CPCU) agents. The CPCU website provides an agent list which is searchable by city. After a bunch of phone calls and a lot of insurance offers (including two agents who gave significantly different prices for identical insurance from the same insurance company) I finally figured out that State Farm had the best deal going for renter's insurance.
Setting Up The Right Policy
In buying renter's insurance the key thing I look for is that the insurance covers full replacement cost rather than at original cost. Even policies that had 'full replacement cost' weren't necessarily what they seemed. For example, one company had a 20% deductible on replacement coverage policies.
Another feature I care about is earthquake coverage. Seattle doesn't get very many earthquakes but the ones it does get are major. Of course, as the previous link shows, the really major ones aren't all that frequent. Still, I'm paranoid so I pay to get earthquake coverage. Not everyone even offers it. Traveler's coverage was especially nice, they had a fixed deductible and then covered all damage over that. State Farm on the other hand has a 10% deductible.
Renter's policies have various gotchas. Things like mold usually have limited damage coverage and an extra rider is usually needed to cover water backup. Also none of these policies provide flood coverage, that has to be purchased separately.
Companies like State Farm that handle multiple lines of insurance offered discounts if we get both auto and renter's insurance with them. I certainly took these discounts into consideration but after doing the math the savings from getting our auto policy from Progressive and our renter's insurance from State Farm was so high that it outweighed all the discounts I was offered.
The single biggest lesson I have taken away from this experience is that comparison shopping of insurance rates is a very worthwhile endeavor. The lowest bids I got were more than two times lower than the highest bids I got for identical insurance. The rates we had going into this were already quite good (they easily beat the vast majority of current bids I saw) and I was still able to beat our current costs by another 20% via comparison shopping.
Another point I also keep in mind is that past insurance rates are not necessarily predictive of future insurance rates. For example, for year's Geico's quote for our auto policy obliterated everyone else, now they are good but not the lowest. Part of the reason for these price swings is that insurance compares are not, well, insurance companies. They are actually investing firms. The way they typically make their profits is by taking in premiums and then investing those premiums. If the insurance company doesn't think there is a good investing environment then they will raise their premiums because they need the extra money to make the stock market's profit expectations. When they think there is a good investing environment they will lower their premiums in order to get as much money to invest as possible. So just because a company previously gave a bad quote doesn't mean that at some point in the future their rate structure might not completely change.