David Stonehouse Features

Getting a deal on auto rates

Rather than simply handing over the cash when insurance premiums go up, get proactive and start bargaining

By David Stonehouse

A sharp jump in auto insurance rates changed Lee Romanov's life.

Staring down a 50-per-cent hike on renewal, the Toronto insurance underwriter was determined to find the best rate. She spent weeks calling some 30 brokers and companies in the quest.

In the end, she found a rate close to the $800 a year she was paying before the notice of a premium hike but was left with a lingering feeling there had to be a better way for people to get a good deal on car insurance.

So she bought rates from insurance companies and launched her own service providing quotes to people anxious to see if they could get a lower rate. When she first started 10 years ago, The Consumer's Guide to Insurance was a telephone service: ring up and answer automated questions about your vehicle and driving record, then wait for the best rates to come back to you.

Now it is an Internet service, www.insurancehotline.com. With a few clicks of the mouse after typing in your details, the best price pops up on the screen.

As word spread and rates climbed, business grew. With Canadians now typically facing significant hikes, she fields 2,000 to 3,000 inquiries a day as people desperately seek out a decent rate.

"It's wild out there. It's unbelievable. When I started, there was only about a $500 to $1,000 difference between the company offering the lowest rate to one offering the highest rate. Now, I have seen over 400-per-cent rate difference for the exact same insurance policy."

Most brokers deal with a handful of insurance companies at most. So when they shop around for a rate on your behalf, they have only quotes from those companies to consider. Ms. Romanov's service has rates from 30 insurance firms.

The online price quote is free, but to get the name of the insurance companies that offer the best rates can cost you $8.50 charged to your credit card. (There is no charge if the hotline can refer you directly to a broker, who then pays the fee.)

Consider the case of a 40-year-old married man in Ottawa driving a 2001 Honda Odyssey. With a clean driving record, the best rate Ms. Romanov finds on his behalf is $966 a year. But another insurer would offer him a quote of $2,540 annually -- for the same policy.

If the same man has had an accident within the last six years, the difference is even more dramatic -- $1,488 a year at best versus $5,304 at worst. That's a gulf of more than $3,800, again for the same insurance.

The Insurance Bureau of Canada says the average increase in premiums last year was 20 per cent, although it argues claim costs have outstripped premium hikes.

Premium hikes aside, the bureau acknowledges rates between insurance companies can vary wildly.

"Companies can market to different segments of the marketplace. Based on what they focus on, it can produce somewhat different results," says John Karapita, manager of external relations.

He recommends people do more than just shop on the web. He suggests talking to others about their experience with insurers before making any decisions.

"Let's not overlook some of the traditional leads used in the past," Mr. Karapita says. "Those tried and true methods include talking to your friends and neighbours about their own experience. What did they find when they had any claims? In the last few years, have they seen any increases in their policies or had any ssues around service with their insurance provider?"

Consumer behaviour expert Jay Handelman says people tend to just throw up their hands when it comes to insurance because it can be so confounding to deal with.

"The average person spends $1,000 a year on auto insurance, give or take a couple hundred dollars. Normally, if you are making an annual $1,000 purchase, you would put a lot of thought, time and energy into it. And yet this is the kind of purchase you don't even think about it -- you just pay your bill every year," says Mr. Handelman, an associate professor of marketing at Queen's University.

"There are two underlying reasons. One is that most consumers have limited information about auto insurance -- where the prices come from are quite cryptic, it is hard to understand the pricing. And the industry is quite complex and there is government involvement.

"Compare that to going out and buying $1,000 electronic item, where you can very clearly see what you are getting, touch it and feel it and compare prices. You can't do that with insurance as easily."

He advises people to pull themselves out of the common mindset that they are powerless when it comes to insurance and become proactive.

Mr. Handelman faced a $200 jump in his own premiums last year. Rather than grumbling and handing over the cash, he started bargaining. He talked to an insurer about bundling together his auto and home policy. He still ended up with an increase, but only by $100.

"You can negotiate with insurance agents. We assume you can't do that but, in fact, you can," he says. "Where they may not be flexible with auto insurance, they may say 'We'll give you a break on home insurance if you carry both with us.' "

Given that a broker only deals with a few insurance companies, if you decide to shop around for the best deal it is a good idea to check with as many brokers as you can.

One point to remember: If you do shop around, it is usually best to do it when the policy is up for renewal. That way, you don't face a penalty for getting out of your current policy. Different insurers have different ways of calculating their penalties, so check out what fees you would face before switching to another company. In the end, the savings may outweigh any penalty but you will want to be certain of that first.

"There is no penalty in shopping around, in the sense that you inquire from your broker what your options are," says Craig Brown, an expert on insurance law and associate dean of law at the University of Western Ontario.

"Then you do the math and decide whether it is worth it or not."Another way to save money is to be part of a group policy. If you are part of a professional association, it may offer group rates on insurance as part of the benefits of membership. Your employer may even offer the same thing. I once worked for a company owned by a family with wide-ranging business interests. This family empire is so large that one insurance company offered 10-per-cent reductions in premiums to its employees who placed home and auto policies in order to gain the business.

The Automobile Protection Association, a non-profit Canadian auto club, offers group insurance rates to its members through a large insurance company. APA president George Iny says that plan saves most of its members about $75 to $100 a year per car over non-group policies.

While it is important to shop around to make sure you are getting a good rate, and worth checking every time your policy goes up for renewal, it is also in your best interest not to hop from one insurer to another every time you get a chance to save a few bucks.

"You have to be careful not to shop around too much. We tell people for a difference of $50 or less on the vehicle -- not on the policy, but the vehicle -- don't switch," Mr. Iny says.

"There is a premium benefit to being considered stable with an insurer. If you switch around too often, you don't have a history with them and your premium becomes more volatile in the event of a future claim," he says.

"It is not a reason to be their hostage, but on the other hand if you are within $50 on say $1,500 of insurance premiums, you might want to stay where you are."