Insurance Companies May Charge Based on Whether You Will Leave Them

Because we handle car accidents as part of our daily business, we think about insurance policies and pricing often. Most consumers, however, give little thought to their insurance needs or even which company they send their premiums to every month. I get the sense that most people pick one company (probably the one their parents have used for decades) early on in their driving years and stick with that company for many years. However, a new push from a consumer advocacy group suggests that being loyal to one insurance company is likely not the best strategy to get the best bang for your buck.

Earlier this week, the Consumer Federation of America (CFA) publicly announced its position in support of a ban on an insurance pricing tactic known as “price optimization.” This pricing strategy looks at data designed to measure a customer’s loyalty to a particular insurance company and whether that customer is likely to stay with the same insurer, even if being charged more. According to CFA, the result of this data mining has allowed insurance companies to charge long-time customers higher rates because they know they can get away with it. Meanwhile, customers deemed more likely to shop around are given a better deal. It seems as though loyalty doesn’t always pay.

CFA’s position is that this price optimization is inherently unfair to consumers and should be prohibited. According to the group’s statement, “the purpose of price optimization is to extract as much profit as possible from policyholders who are often required to purchase insurance policies.”

So far, ten states have banned the practice. Unfortunately for Georgians, CFA told the AJC that repeated calls to Georgia’s Insurance Commissioner’s Office to take action have led nowhere. This comes in the face on another report from the AJC that Georgia tops the national rankings for price increases in the price of auto insurance. Clearly, Georgia consumers would be well-served by shopping around and comparing rates to make sure their loyalty isn’t hurting them.