Tips for Saving Money on Your Auto Insurance
Life Hack for Saving Time: Pass the FTC’s Auto Dealer Rule
Department of Labor ERISA Council Must Protect Retirees and Workers Pensions
CFA Report Shows That Real Estate Agent Glut Harms Both Industry and Consumers
Tips for Saving Money on Your Auto Insurance
By: Michael Delong, Research and Advocacy Associate
Auto insurance is an interesting product: we are all required to have it if we own a car, but we hope never to have to use it, and we try not to think about it. But as insurance premiums continue to skyrocket, it has probably been on your mind more. Even though we can face stiff penalties for driving without insurance, many drivers struggle to keep up with the rate increases. In addition to the price pain, the insurance product itself can be kind of bewildering: what are all these different “coverages,” which do I need, and (of course) why do they cost so much?
Consumer Federation of America (CFA) and America Saves are here to help. At its most basic, auto insurance covers damage or injury you cause to another car or person while you are driving. Depending upon your state and the coverage you choose, your insurance policy may also cover your medical bills or damage to your car when you cause a crash, when you are hit by an uninsured driver, or when your car is stolen or crushed by a tree branch.
Every state except New Hampshire requires drivers to have auto insurance—and New Hampshire still requires financial responsibility if you cause an accident, so the overwhelming majority of people there have auto insurance. If you do not have auto insurance, you are breaking the law. And if you are caught you may be fined, have your license suspended and have to pay a fee to recover it, and possibly even face jail time.
Over the next several weeks CFA and America Saves are partnering on a series of articles on auto insurance—how to save money, what consumers should know, and several myths about auto insurance. Please note that these tips are general in nature and may not reflect every reader’s personal needs and situation; you should consult financial advisors and insurance professionals as you make decisions.
You can save money on your auto insurance with these tips:
- Shop around—and shop around using multiple options. Auto insurers use a variety of driving and non-driving socio-economic rating factors to set your premiums. Driving-related factors include your driver safety record, the number of miles driven, and whether you have been in any accidents or filed any claims. Non-driving related factors include your gender and marital status, your credit score, your education level, your job or occupation, whether and how much insurance you’ve had in the past, and whether you own a home or rent. Insurers also place a lot of emphasis on where you live, often based on your ZIP code and even on which block you live in your neighborhood.
Each auto insurer calculates these factors and their impact on your premium in different ways – some rely heavily on your credit history and never consider your job title or educational history, while others may weigh several aspects of socio-economic status when calculating your premium. It is well worth your time to sit down and get quotes from different insurance companies. If one company charges you $120 per month and you find another company that only charges you $90 per month, that $30 savings per month will add up to $360 saved per year.
Consumers can compare quotes in several different ways:
- Online: You can go to different auto insurer websites, fill out your information, and get the quotes, and you can use comparison websites such as the Zebra, Bankrate, or ValuePenguin. These websites enable you to compare a few quotes more quickly and easily. It is important to note that these companies do not scan the whole market for you, and they get paid by insurance companies.
- Through an agency. You can contact licensed insurance agents to get additional quotes and guidance about insurance generally. There are some agents – known as “exclusive” or “captive” agents who only sell one insurance brand and may have deep knowledge about the offerings of their company. Others, known as “independent” agents and brokers, can scan several insurers’ offerings for you, including some that may not be available online.
We recommend that people shop around through each of these methods to get the best set of options and find the best price. One note, some insurance sellers, known as “brokers” may charge an additional “broker fee” if you work with them. Unless you have a particularly unique situation – such as a very bad driving record or a very expensive or custom vehicle – we recommend against purchasing auto insurance from brokers who charge a fee.
2. Consider whether you still need comprehensive and collision coverage. These options on an insurance policy will pay to repair or replace your car if it is damaged by you (such as accidentally crashing into a pole while parking), some natural event like a falling tree branch, or if it is stolen. If you have a car loan or lease your vehicle, these coverages are required, but if you own your car outright, they are optional. “Comp and Collision” are particularly helpful if your car value is still pretty high, but if your car is not worth much anymore, it may be time to consider dropping Comp and Collision. Since these coverages usually come with a deductible – typically $500 – that you have to pay first before any insurance payments kicks in, it may be better to try and set aside a little money each month just in case you damage the vehicle, rather than pay hundreds of dollars in premiums each year for a car worth only a few thousand dollars. As a thumbnail rule, if your car value is less than ten times what you pay for Comp and Collision, you might consider dropping it. That is, if your car is worth $10,000, it might not be worth it to spend more than $1,000 a year on Comp and Collision; if it’s only worth $3,000, think twice about a policy costing more than $300 for those coverages.
3. Check your credit score for errors and try to improve it as well. We hate to make this recommendation, because it is ridiculous that this should impact your insurance premium. But, until politicians stand up to insurance companies and stop this practice (it is already prohibited in California, Hawaii, and Massachusetts), it is one of the biggest drivers of your auto insurance premium. Our research indicates that consumers with a perfect driving record and poor credit scores pay on average at least twice as much for auto insurance compared to consumers with a poor driving record and excellent credit scores.
The first thing you can do is examine your credit report for errors, which are unfortunately quite common, and demand that any errors be corrected. You can get a copy of your credit report at this link. If you find errors, contact your insurer and demand that they re-run your “credit-based insurance score,” re-price your policy if appropriate, and refund any excess they charged by using a faulty score. Over time, you can work on improving your credit score by following the credit score improvement strategies described here.
CFA is fighting to ban auto insurers from charging consumers more based on their credit; if you are interested in learning more or getting involved, email us at mdelong@consumerfed.org.
4. Make sure your insurer knows how much you drive. Many companies charge lower prices to low-mileage drivers. If you are driving less (because you are working from home, out-of-work, or retired) than you used to, you may be paying more than you should. Find out how many annual miles the insurer is estimating for you when they set your premium and correct them if they are rating you based on out-of-date information.
5. Improve your driving by taking a driving improvement course. Auto insurance companies charge far higher premiums if they believe you are a risky driver, since that increases the chances of your being in a crash and the insurance company having to pay a claim. If your driving record is checkered or you would like to save on your insurance, some auto insurers will offer you a discount if you take a defensive driving course. Check with your insurance company or agent to see if you qualify for a discount if you take this course, some of which can even be taken online.
6. Pay your auto insurance premium in full instead of monthly. If you’re struggling to cover the cost of insurance, then you are probably paying in installments. It may be hard to imagine paying it all at once, but it’s worth calling your company and asking how much you would save if you did. With some companies it can be 5-8% or even as much as 12%. If you are on a six-month policy (where the pay-in-full amount is much less than an annual policy), and you pay a significant installment fee, consider paying all at once.
7. Look for additional discounts. Many auto insurers offer further discounts if you meet certain conditions. Possible benefits include: discounts for having a paperless policy, a student discount, a discount if your car gets an anti-theft device, an automatic payments discount, or a discount for veterans/members of the military.
Auto insurance is required in most states, and it is also a crucial tool for financial security and economic mobility (as well as actual mobility in most places). Some of the reasons for high prices have to do with unfairness in the marketplace and company greed – CFA is working on improving laws and regulations to better protect consumers from these problems – but being a savvy insurance shopper and consumer can help. We hope that this will help you save on your auto insurance.
Life Hack for Saving Time: Pass the FTC’s Auto Dealer Rule
By: Erin Witte, Director of Consumer Protection
The Federal Trade Commission sells its Motor Vehicle Dealer Rule short when it estimates that consumers will only save $30 billion over ten years. The $30 billion number is the dollar equivalent of the time savings (on average: 3 hours per transaction) for consumers because the rule would prohibit dealers from advertising deals that are not available, and from wasting consumers’ time by making them call or physically go to a dealership to haggle over the price of the car. It is hard to imagine that anyone will be unhappy about having to spend less time at a car dealership – $30 billion is just icing on the cake.
But time savings, significant as they are, are only one small fraction of the ways consumers would save money with this rule. Dealers would not be able to sell worthless add-on products or deceive consumers into buying them. If the FTC’s cases against Passport and Napleton are any indicator, the cost savings here will well exceed the $30 billion estimate. Napleton alone allegedly charged over $70 million in deceptive and unauthorized add-ons. With over 45,000 dealers in the U.S. generating hundreds of thousands of complaints to government regulators, it is safe to assume that Napleton and Passport are not simply “bad apples.” Implementing safeguards to help prevent these and other deplorable practices will only put more money back in consumers’ pockets, stimulate competition, and make the process of buying a car slightly less painful.
Enter the lobbying powerhouse National Automobile Dealers Association (NADA), smelling blood in the water for dealers’ substantial profits, and predictably dipping into its well-funded coffers to generate a fearmongering survey and report about the FTC’s rule. Before asking a single question, the survey spends three pages striking fear in the hearts of dealers about expanded liability, exposure to significant monetary penalties, and “increase[d] consumer confusion and frustration.” It is no surprise that this “representative sample” of 40 dealers (out of “roughly 60,” handpicked by NADA) who managed to fully complete the survey (and “nearly fifteen” who were interviewed) want us to believe that the rule will cost consumers more than it saves. This simply is not true.
Perhaps it’s time we asked the people who rely on and pay increasingly high amounts for cars what they would like to see. Thousands of consumers responded to the FTC’s rulemaking, sharing horror stories and pleading for its passage. The least we can give them is a measly 3 hours and $30 billion back.
Department of Labor ERISA Council Must Protect Retirees and Workers Pensions
By: Micah Hauptman, Director of Investor Protection
On July 18th, CFA’s Director of Investor Protection Micah Hauptman testified before the Department of Labor’s Advisory Council on Employee Welfare and Pension Benefit Plans, known as the ERISA Advisory Council. The purpose of the hearing was to help the Department determine whether it should update its longstanding guidance for pension plan fiduciaries in order to ensure that their decisions to transfer worker and retiree pensions to annuity providers are in the sole interests of workers and retirees.
Hauptman stated that in recent years many of the largest companies in the U.S. have transferred their pension obligations to insurance companies that provide annuities to workers and retirees. When companies do this, they shift risks onto insurance companies that, if not carefully controlled for, could undermine insurance companies’ abilities to fully pay those annuities to workers and retirees.
At the same time, insurance companies’ business models are evolving in ways that may increase risks for insurers, Hauptman stated. For example, private equity firms have become increasingly involved in insurance markets, introducing new sources of risk, complexity, and opacity to insurers’ businesses — risks that may undermine insurance companies’ ability to pay annuities to workers and retirees.
While state-based insurance guarantees may offer a partial backstop against the risk that insurance companies may not pay their annuity obligations, those guarantees are not as robust as the insurance guarantees that are provided under federal law by the Pension Benefit Guaranty Corporation (PBGC), Hauptman stated. Thus, the workers and retirees whose pensions are transferred to annuities are at risk of losing valuable benefits if the insurance company providing their annuity were to fail.
Given these heightened risks to workers and retirees arising from pension risk transfers to annuity providers, Hauptman urged the Department to preserve the protections in the current guidance for pension plan fiduciaries and offered several suggestions for the Department to consider to strengthen the guidance so as to ensure that any pension risk transfer arrangements do not leave workers or retirees worse off than they would be if they stayed in the defined benefit pension. These included:
- Preserving the requirement for fiduciaries to select the safest annuity available;
- Requiring fiduciaries to select annuities that are independently reinsured; and
- Not permitting fiduciaries to satisfy their obligations by providing disclosures about the risks associated with the transfer or by accepting written representations by an insurance company that it is complying with state insurance laws.
Hauptman reminded the Department that workers and retirees have earned their pensions and depend on them for a secure retirement. Accordingly, the Department must ensure that those benefits and the protections afforded to workers and retirees are not compromised.
CFA Report Shows That Real Estate Agent Glut Harms Both Industry and Consumers
Earlier this month CFA released a new report – “A Surfeit of Real Estate Agents: Industry and Consumer Impacts” – revealing with industry data that there are too many residential real estate agents compared to the amount of homes available for sale. The report also found that this imbalance burdens consumers with higher commission costs and leaves them vulnerable to inexperienced real estate agents.
There are more than 1.5 million residential agents who belong to the National Association of Realtors and compete for home sales, with costs totaling between $5 to $6 million annually. The costs include:
- economic inefficiencies including an inordinate time spent by agents finding clients,
- relatively low incomes of many full-time agents,
- frustration by these agents and by many consumers who must deal with inexperienced agents,
- reinforcement of relatively high and uniform commission rates, and
- damage to the reputation of the industry.
“A large majority of practicing real estate agents have recently received their license or work part-time,” said Stephen Brobeck, a senior fellow at CFA and author of the report. “These agents usually charge the same commission rates as experienced, full-time agents yet in general offer worse service and deprive experienced agents of needed clients.”
Marginal agents with fewer than five sales a year receive an estimated 25-30 percent of commission income. The report found that the median net income of all sales agents was approximately $25,000, and the median net income of sales agents with less than two years of experience was $7,800. For all brokers and associate brokers, the net median income was $57,100.
“Without 5-6 percent commission rates, even fewer agents would survive financially in today’s marketplace,” said Brobeck. “Ironically, relatively high rates attract new entrants into the industry, increasing competition for clients and reducing individual income for all.”
A future CFA report will explore the ease with which people can obtain a real estate license compared to the difficulty for most licensees to learn how to succeed as realtors.
“To protect consumers and experienced realtors, the industry should discourage unqualified and insufficiently committed people from obtaining a license,” said Brobeck. “The industry should prioritize making it easier for capable, hard-working licensees to succeed. We look forward to expanding on this suggestion in a future report.”