I have never agreed with price optimization. Having said that, when customers price shop, they rarely are comparing the critical factors such as proper limits, additional coverage, service, and claims handling practices. When an agent is taken out of the equation, the product is commoditized and (frequently) less than optimum coverage is sold.
The example of loyalty used in the article referred to someone with multiple accidents. That is not typically a candidate who can successfully shop their insurance.
Wasn’t there an article recently about Allstate using that dreadful optimization scheme where they would see loyal customers who had been with them a number of years and judge how much rate they could take without running them off? Only a dufus actuary could think of something like that? Some carriers penalize drivers over age 65 with higher rates because they assume they will be worse risks. Not that long ago, companies coveted the mature drivers and wanted their business. Only the Hartford AARP seems to offer deals to the Seniors with lower costs. It is probably tied to their Medicare Supplement plans.
What is it with your hate towards actuaries? This is the third time today I have seen you insult them for no reason. Are you trolling them or did they hurt you when you were a kid or are you just an angry little man?
Hey Enough, I have seen some serious actuarial blunders over the years. They are the pits. To think that CEO’s and Boards actually listen to them is amazing. Then, when things go south and the company runs off a bunch of good customers taking too much rate, they then re-tool and figure out some other scheme.
I don’t about you but in my state Hartford AARP took some serious rate hikes. Older drivers are a higher risk. That has nothing to do with rate optimization.
This type of article gives me headaches….. all insurance policies must be the same – right? Only the price is the difference – right? If the limits are the same then the policy must be same – right?
I don’t disagree with the article per se. It is the slant that is added. Rather than focus on the reasons that prices may differ – it mentions them in passing, almost as if those are rarities. It should have focused on the findings of the Texas report and brought some context and color as to what may cause priding to be different. Instead, they bring in Price Optimization, implying this is the culprit. While there are some carriers practicing this in various forms, they are the minority. The end result is to further the commoditization of a complex financial risk transfer arrangement and put the public at greater risk.
Walt, you are correct, very little of the price differences seen is related to the few companies reviewing price optimization. When reviewing territory pricing we look at the rates for larger competitors that have more data to make sure we’re not going off the deep end with our changes. What we find is that companies are not consistently high or low across the state. A company may be very low in one area and very high in another in comparison to other companies. Shopping can help you find the company that believes your characteristics lead to low costs.
The article focuses on price and briefly mentions comnparing coverages and says little about service. Unfortunately, the only way you know how good they are in handling claims is to have one or a few. If you have a few, the problem is probably seen by looking in a mirror. Anyway, in my 40+ year driving career I’ve been involved in about 4-5 incidents. The worst being GEICO from somebody trying to break into my car for a multitude of reasons (thanks Warren). And the best has been State Farm. Good repair network and quick and fair handling of claims.
I understand the point of having a qualified professional independent agent looking out for my best interests, but being an insurance profesional myself, I feel pretty confident that I’m adequately insuring myself. That all being said, I’m willing to pay a bit more for the piece of mind in knowing I will be treated fairly aftre a loss and that I won’t get screwed over like I was by GEICO.
Dave – don’t disagree really with anything you say, but your comment does illustrate the danger of making decisions with small samples. In my 35 years of driving, I was rear-ended once by an underinsured driver when I was insured with GEICO and my wife was t-boned by a State Farm driver. Our GEICO claim was handled great and the State Farm claim was terrible. I blame the State Farm experience on an inexperienced adjuster and don’t necessarily expect a future claim with them would be the same. I also recognize that I could run into a similar bad experience with GEICO in the future.
The practice of price optimization basically says we will charge you loyal customer 1 price and you new customer (all criteria the same)a lower price. How in the world does that make sense?
Hmmmm, that is the opposite of how I was taught that a new business customer was more expensive to put on the books than to issue a renewal of an existing customer that the history was already known.
Agent, do you still wonder why people keep calling you out for having poor reading comprehension skills? You couldn’t even comprehend a SINGLE sentence paragraph correctly!
Practices like these are what validate the consumers mistrust of insurance companies. If we state the actuary has calculated a fair rate for the risk, then everyone should be entitled to that rate! Too bad the agents get lumped in the same class of a Used Car Salesman when the company execs are coming up with this tactic.
Bingo! I once had a customer tell me we are ambassadors for an industry that gives out a lot of BS. He knew the facts. Most consumers of insurance don’t.
We spend (waste) a lot of time moving business around to keep it.
Yes Diane, I had a company rep in my office this morning and I asked him if he had heard of “price optimization” where good long term existing accounts are given higher rates than new applicants and he gave me a blank stare. He then said his company didn’t do that. I have a feeling that they do that because we see their renewals, the re-scoring, the re-tiering and the so called maintenance rate taking. It has caused a lot of disruption and no wonder agents have to move business to keep it.
Sorry actuaries, the gig is up. I knew this was going to blow up in the carriers’ faces. It was one of the worst kept secrets that carriers were beginning to kept rates higher for long term customers. Frankly, I am glad that we can begin to have a serious discussion about this embarrassing business model.
As usual with articles like this, not a single mention of COVERAGES and EXCLUSIONS. This statement is a good example:
“Lachnit says it makes sense to shop around every few years. It is important, though, for drivers to keep a list of their coverage in front of them to be sure they are comparing apples to apples.”
Keeping a “list of their coverage in front of them,” meaning liability limits, med pay limit, UM limits, physical damage deductibles, etc. does not allow an “apples to apples” comparison. What if the new cheaper policy has one or more exclusions not in the more expensive policy that would apply to exposures the insured has?
It’s incredibly frustrating to read article after article ad nauseam that gives advice from people who clearly don’t understand what they’re talking about.
I receive this newsletter as I am a board member of an auto insurance company and not an agent. I have used an independent agent all my life for my insurance coverage. From personal experience I had an agent cold call me and offer to review my coverage. I let him, and he saved me a substantial amount of premium and kept me with the same insurance company. The individual at my then agent was just renewing my coverage and never reviewing to see if I qualified for other classifications and discounts. And in an interesting twist, the individual at my “new” agent did a great job periodically reviewing my coverages and shopping other companies they represent, but retired a couple of years ago. Now I believe I am in the same rut of annual renewals with no reviews. So yes, in my opinion coverage should be shopped periodically.
If you are with Allstate, you will be optimized at a higher premium than new business. They have the gall to advertise a $496 average savings for new customers and then raise their existing good customers and watch it go out the back door.
Apples-to-apples comparison is key when shopping around and making sure to watch out for any exclusions as mentioned by Bill. Not all insurance policies are created equal nor is the claim handling experience of a company. I’m an independent insurance agent in PA and see wide ranges of pricing for every client when quoted across our companies (which is over 12 companies). We represent standard and non-standard carriers. The abundance of advertising by the direct writers (GEICO, State Farm, Allstate, Liberty Mutual, Farmers, etc.) is unfortunately making it seem to consumers that insurance is a commodity like a can of soup. I have to educate and re-educate my clients that just because your neighbor pays $X doesn’t mean you will get the same price. Why? Because a) they don’t even know the liability limits and coverage selected for their neighbor, b) their neighbor may drive a 10 year old car versus their brand new car, and c) they don’t know their neighbors’ driving history or credit score among many other factors that come into the risk model of determining the insurance premium. We do review our clients policies every renewal to make sure the pricing is competitive, has there been any life changes, have they been with the same company for awhile and should have a rewrite to see if their credit has improved, among other things. Companies that like a certain geography and target risk will price themselves competitively for that business while others will price themselves out of it. Consumers also don’t realize that insurance companies have relatively small margins of profit and do have years of losses. Some companies price themselves too competitively find that after a few years of opening the flood gates for new business it comes back to haunt them because they effectively sold it below cost and then have to take a big rate hike to be priced appropriately. I think everyone can agree that it’s bad business to sell below cost. The insurance industry has to continually educate itself on predicting the future of natural disasters, driving behavior, and new risks created from technology such as Uber, self correcting driving features of cars for breaking, etc. I do think that most people will benefit the most by going with a reputable independent agent to look after their best interests and who will help the consumer adjust their insurance as their needs change. The independent agent can’t guarantee the best rate 100% of the time, but they should be able to provide very competitive prices for the consumer as long as they are a client of the agent. An independent agent is always available to provide insurance advice and guidance for a client’s personal needs, which is great because it’s unbiased and free of charge.
I was a customer with GEICO for 7 years with a perfect driving record and rates continued to increase every 6 months. The difference with several other carriers was significant enough for me to switch. When I cancelled with GEICO, they asked why, then gave me a very low “reduced” rate trying to keep me. I asked if they would put the lower rate in writing, they refused, so I moved coverage.
Mary, GEICO was dishonest with you. If they could have kept your rate lower, why didn’t they? You were optimized. Good for you for moving your coverage.
I have often said that insured’s tend to be more loyal to insurers than insurers are to insureds.
Having said that, I have also noticed that over the past few years, we have seen many more uninsured motorist or underinsured motorist claims than I have seen in my more than 50 years in this business. From that fact, I have guessed that many drivers have been sold a policy based only on price and not on coverage.
JoeBoy, astute observation. When we read about large numbers of UM drivers, we automatically think of drivers without insurance or possibly inadequate limits, while it’s quite likely that they have an exclusion-riddled low-cost (allegedly) policy. What is being approved for the marketplace today by regulators is often shameful.
The primary reason for auto liability, compulsory insurance laws, and minimum financial responsibility limits is to protect the general public from negligent drivers. But when stripped-down coverage policies are allowed into the marketplace in a competitive price frenzy, the primary purpose of liability coverage is thrown to the wind.
Here’s a recent example that could be (and probably is in many other instances) worse:
I think one thing that is not mentioned is that most middle class insureds need to optimize their entire insurance package which is Auto, Home and Umbrella. Picking off just Auto can cause problems.
In addition, in my experience, the newer low cost direct carriers have a very efficient and pleasant process for fixing car damage and some of the old line carriers do not. Just like when Jet Blue showed up with superior accouterments to the “premium carriers”.
I have worked for the carriers, they have no sense of loyalty to either their agents or customers when the accountants and actuaries make decisions to optimize their bonuses in some city 1,000 miles away. The fact that carriers screw, rather than cherish, their long time customers proves to the customers that loyalty is a fools games.
So the insurance carriers have made their bed. They have failed to respond to the direct writers appropriately. The agents are therefore in big trouble.
I could never figure out why insurance companies use actuaries only? Actuaries have investigated the black and white characteristics of a customer, but as an agent for over 25 years I can smell a good customer before he or she walks in my office. Insurance companies struggle to make a profit, many industries have changed their methods on profitable thinking, insurance has not changed dramatically in 200 years. If the carriers would start to realize that we are in the sales business, maybe sales would become more profitable.
While saving money on the coverage is always a nice surprise, I have found that the loyalty helps immensely when negotiating at the time of a claim.
I have never agreed with price optimization. Having said that, when customers price shop, they rarely are comparing the critical factors such as proper limits, additional coverage, service, and claims handling practices. When an agent is taken out of the equation, the product is commoditized and (frequently) less than optimum coverage is sold.
The example of loyalty used in the article referred to someone with multiple accidents. That is not typically a candidate who can successfully shop their insurance.
Wasn’t there an article recently about Allstate using that dreadful optimization scheme where they would see loyal customers who had been with them a number of years and judge how much rate they could take without running them off? Only a dufus actuary could think of something like that? Some carriers penalize drivers over age 65 with higher rates because they assume they will be worse risks. Not that long ago, companies coveted the mature drivers and wanted their business. Only the Hartford AARP seems to offer deals to the Seniors with lower costs. It is probably tied to their Medicare Supplement plans.
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Hey Enough, I have seen some serious actuarial blunders over the years. They are the pits. To think that CEO’s and Boards actually listen to them is amazing. Then, when things go south and the company runs off a bunch of good customers taking too much rate, they then re-tool and figure out some other scheme.
I don’t about you but in my state Hartford AARP took some serious rate hikes. Older drivers are a higher risk. That has nothing to do with rate optimization.
This type of article gives me headaches….. all insurance policies must be the same – right? Only the price is the difference – right? If the limits are the same then the policy must be same – right?
I don’t disagree with the article per se. It is the slant that is added. Rather than focus on the reasons that prices may differ – it mentions them in passing, almost as if those are rarities. It should have focused on the findings of the Texas report and brought some context and color as to what may cause priding to be different. Instead, they bring in Price Optimization, implying this is the culprit. While there are some carriers practicing this in various forms, they are the minority. The end result is to further the commoditization of a complex financial risk transfer arrangement and put the public at greater risk.
Walt, you are correct, very little of the price differences seen is related to the few companies reviewing price optimization. When reviewing territory pricing we look at the rates for larger competitors that have more data to make sure we’re not going off the deep end with our changes. What we find is that companies are not consistently high or low across the state. A company may be very low in one area and very high in another in comparison to other companies. Shopping can help you find the company that believes your characteristics lead to low costs.
The article focuses on price and briefly mentions comnparing coverages and says little about service. Unfortunately, the only way you know how good they are in handling claims is to have one or a few. If you have a few, the problem is probably seen by looking in a mirror. Anyway, in my 40+ year driving career I’ve been involved in about 4-5 incidents. The worst being GEICO from somebody trying to break into my car for a multitude of reasons (thanks Warren). And the best has been State Farm. Good repair network and quick and fair handling of claims.
I understand the point of having a qualified professional independent agent looking out for my best interests, but being an insurance profesional myself, I feel pretty confident that I’m adequately insuring myself. That all being said, I’m willing to pay a bit more for the piece of mind in knowing I will be treated fairly aftre a loss and that I won’t get screwed over like I was by GEICO.
Dave – don’t disagree really with anything you say, but your comment does illustrate the danger of making decisions with small samples. In my 35 years of driving, I was rear-ended once by an underinsured driver when I was insured with GEICO and my wife was t-boned by a State Farm driver. Our GEICO claim was handled great and the State Farm claim was terrible. I blame the State Farm experience on an inexperienced adjuster and don’t necessarily expect a future claim with them would be the same. I also recognize that I could run into a similar bad experience with GEICO in the future.
The practice of price optimization basically says we will charge you loyal customer 1 price and you new customer (all criteria the same)a lower price. How in the world does that make sense?
Well, Agent2 – it cost less on the administration of the policy to retain an account than to put a new account on
yes, that’s my point.
Hmmmm, that is the opposite of how I was taught that a new business customer was more expensive to put on the books than to issue a renewal of an existing customer that the history was already known.
Agent, you may want to re-read what Hmmmm posted one more time as you did not comprehended his statement correctly.
You are both saying “it costs more to put a new account on than it does to retain an existing account” just in different ways.
Agent, do you still wonder why people keep calling you out for having poor reading comprehension skills? You couldn’t even comprehend a SINGLE sentence paragraph correctly!
Practices like these are what validate the consumers mistrust of insurance companies. If we state the actuary has calculated a fair rate for the risk, then everyone should be entitled to that rate! Too bad the agents get lumped in the same class of a Used Car Salesman when the company execs are coming up with this tactic.
Bingo! I once had a customer tell me we are ambassadors for an industry that gives out a lot of BS. He knew the facts. Most consumers of insurance don’t.
We spend (waste) a lot of time moving business around to keep it.
We look like horse traders when they do that.
Yes Diane, I had a company rep in my office this morning and I asked him if he had heard of “price optimization” where good long term existing accounts are given higher rates than new applicants and he gave me a blank stare. He then said his company didn’t do that. I have a feeling that they do that because we see their renewals, the re-scoring, the re-tiering and the so called maintenance rate taking. It has caused a lot of disruption and no wonder agents have to move business to keep it.
Sorry actuaries, the gig is up. I knew this was going to blow up in the carriers’ faces. It was one of the worst kept secrets that carriers were beginning to kept rates higher for long term customers. Frankly, I am glad that we can begin to have a serious discussion about this embarrassing business model.
As usual with articles like this, not a single mention of COVERAGES and EXCLUSIONS. This statement is a good example:
“Lachnit says it makes sense to shop around every few years. It is important, though, for drivers to keep a list of their coverage in front of them to be sure they are comparing apples to apples.”
Keeping a “list of their coverage in front of them,” meaning liability limits, med pay limit, UM limits, physical damage deductibles, etc. does not allow an “apples to apples” comparison. What if the new cheaper policy has one or more exclusions not in the more expensive policy that would apply to exposures the insured has?
It’s incredibly frustrating to read article after article ad nauseam that gives advice from people who clearly don’t understand what they’re talking about.
I receive this newsletter as I am a board member of an auto insurance company and not an agent. I have used an independent agent all my life for my insurance coverage. From personal experience I had an agent cold call me and offer to review my coverage. I let him, and he saved me a substantial amount of premium and kept me with the same insurance company. The individual at my then agent was just renewing my coverage and never reviewing to see if I qualified for other classifications and discounts. And in an interesting twist, the individual at my “new” agent did a great job periodically reviewing my coverages and shopping other companies they represent, but retired a couple of years ago. Now I believe I am in the same rut of annual renewals with no reviews. So yes, in my opinion coverage should be shopped periodically.
If you are with Allstate, you will be optimized at a higher premium than new business. They have the gall to advertise a $496 average savings for new customers and then raise their existing good customers and watch it go out the back door.
Apples-to-apples comparison is key when shopping around and making sure to watch out for any exclusions as mentioned by Bill. Not all insurance policies are created equal nor is the claim handling experience of a company. I’m an independent insurance agent in PA and see wide ranges of pricing for every client when quoted across our companies (which is over 12 companies). We represent standard and non-standard carriers. The abundance of advertising by the direct writers (GEICO, State Farm, Allstate, Liberty Mutual, Farmers, etc.) is unfortunately making it seem to consumers that insurance is a commodity like a can of soup. I have to educate and re-educate my clients that just because your neighbor pays $X doesn’t mean you will get the same price. Why? Because a) they don’t even know the liability limits and coverage selected for their neighbor, b) their neighbor may drive a 10 year old car versus their brand new car, and c) they don’t know their neighbors’ driving history or credit score among many other factors that come into the risk model of determining the insurance premium. We do review our clients policies every renewal to make sure the pricing is competitive, has there been any life changes, have they been with the same company for awhile and should have a rewrite to see if their credit has improved, among other things. Companies that like a certain geography and target risk will price themselves competitively for that business while others will price themselves out of it. Consumers also don’t realize that insurance companies have relatively small margins of profit and do have years of losses. Some companies price themselves too competitively find that after a few years of opening the flood gates for new business it comes back to haunt them because they effectively sold it below cost and then have to take a big rate hike to be priced appropriately. I think everyone can agree that it’s bad business to sell below cost. The insurance industry has to continually educate itself on predicting the future of natural disasters, driving behavior, and new risks created from technology such as Uber, self correcting driving features of cars for breaking, etc. I do think that most people will benefit the most by going with a reputable independent agent to look after their best interests and who will help the consumer adjust their insurance as their needs change. The independent agent can’t guarantee the best rate 100% of the time, but they should be able to provide very competitive prices for the consumer as long as they are a client of the agent. An independent agent is always available to provide insurance advice and guidance for a client’s personal needs, which is great because it’s unbiased and free of charge.
I was a customer with GEICO for 7 years with a perfect driving record and rates continued to increase every 6 months. The difference with several other carriers was significant enough for me to switch. When I cancelled with GEICO, they asked why, then gave me a very low “reduced” rate trying to keep me. I asked if they would put the lower rate in writing, they refused, so I moved coverage.
Mary, GEICO was dishonest with you. If they could have kept your rate lower, why didn’t they? You were optimized. Good for you for moving your coverage.
I have often said that insured’s tend to be more loyal to insurers than insurers are to insureds.
Having said that, I have also noticed that over the past few years, we have seen many more uninsured motorist or underinsured motorist claims than I have seen in my more than 50 years in this business. From that fact, I have guessed that many drivers have been sold a policy based only on price and not on coverage.
JoeBoy, astute observation. When we read about large numbers of UM drivers, we automatically think of drivers without insurance or possibly inadequate limits, while it’s quite likely that they have an exclusion-riddled low-cost (allegedly) policy. What is being approved for the marketplace today by regulators is often shameful.
The primary reason for auto liability, compulsory insurance laws, and minimum financial responsibility limits is to protect the general public from negligent drivers. But when stripped-down coverage policies are allowed into the marketplace in a competitive price frenzy, the primary purpose of liability coverage is thrown to the wind.
Here’s a recent example that could be (and probably is in many other instances) worse:
http://www.independentagent.com/Education/VU/Agency%20Management/Sales/Wilson/WilsonCheap.aspx
I think one thing that is not mentioned is that most middle class insureds need to optimize their entire insurance package which is Auto, Home and Umbrella. Picking off just Auto can cause problems.
In addition, in my experience, the newer low cost direct carriers have a very efficient and pleasant process for fixing car damage and some of the old line carriers do not. Just like when Jet Blue showed up with superior accouterments to the “premium carriers”.
I have worked for the carriers, they have no sense of loyalty to either their agents or customers when the accountants and actuaries make decisions to optimize their bonuses in some city 1,000 miles away. The fact that carriers screw, rather than cherish, their long time customers proves to the customers that loyalty is a fools games.
So the insurance carriers have made their bed. They have failed to respond to the direct writers appropriately. The agents are therefore in big trouble.
I could never figure out why insurance companies use actuaries only? Actuaries have investigated the black and white characteristics of a customer, but as an agent for over 25 years I can smell a good customer before he or she walks in my office. Insurance companies struggle to make a profit, many industries have changed their methods on profitable thinking, insurance has not changed dramatically in 200 years. If the carriers would start to realize that we are in the sales business, maybe sales would become more profitable.