What Are You Willing to Do for Cheaper Car Insurance?

Two toy cars and parked hood to hood next to a calculator on top of insurance paperwork. — (Image credit: Getty Images)

The first auto insurance policy was offered in 1897 by the Travelers Insurance Company. It was sold to Gilbert J. Loomis of Westfield, Mass. The cost was in the neighborhood of about $11, and it provided $1,000 in liability coverage. This equates to around 1% of premium to total coverage or 80 years to self-insure. For comparison sake, for liability coverage today, we pay about 0.5%, and it would take 200 years to self-insure. Add to that for this same cost we are insuring the value of the vehicle and the cost per $1,000 drops even more dramatically depending on the cost of the vehicle. So why, then, does it feel like we are paying more for our car insurance than ever? Because we are.

If we compare what we pay compared with what we get, the cost for auto insurance goes down, down, down. However, if we look at the actual dollars we are paying out of pocket, then we see the cost going up, up, up. The reasons for this are beyond the scope of this article. However, the low-hanging-fruit reasons include inflation, cost of labor, cost of cars and increases in claim frequency and severity. So if we’re writing bigger checks — OK, let me rephrase that, since likely some of you might not even know what “writing a check” means… Since we’re charging more on our credit cards in order to maintain auto insurance, what are we willing to do in order to pay less?

Insurance companies work based on actuarial reproducible numbers. Statistical significance. There is no emotion involved, there is no privacy, there is no personality, just raw, cold numbers. Another way to look at it is simply: Just the facts, ma’am. What these numbers show are that there are in fact quite a few ways to predict auto insurance losses. The caveat is that each state has its own regulations that either permit or prohibit insurers from utilizing them. Let’s look at a few.

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Your credit score

What in tarnation does your credit score have to do with your likelihood of rear-ending the car in front of you, driving after slamming down more than your share of beers or learning that a Long Island iced tea actually has no iced tea in it? Turns out a lot. The Federal Trade Commission has conducted many studies, one in 2007 that found a strong correlation between credit-based insurance scores and the risk of filing claims or having future losses. The Insurance Information Institute has also conducted studies that came to the same conclusion. It’s not personal, it’s just numbers. Are you willing to share your credit report with your insurance company to help determine your premium?

How you drive

You know it and I know it: Some people are simply better drivers than others. Having a heavy right foot is a real thing, and you know who I’m talking to. When I was a young (slow) driver, my friends would drive past a slow-moving car and say, “Hey, that guy is driving at Karl cruising speed!” I was apparently the cautious one destined to help people prevent losses. It will therefore come as no surprise to you that people who have speeding tickets get into more car accidents. Moving faster means less time to react, which means more likelihood of a collision. This seems like fairly common sense.

What if you were able to show your insurance company that you drive more cautiously than the average Joe? You don’t tailgate, you don’t make fast accelerations, you don’t whip around corners while tossing your Starbucks latte out the window. Slamming on your brakes is uncommon as well, since you’re simply not putting yourself in the usual situations that would require you to pound your foot on the brake and say three Hail Marys.

Insurance companies in states that permit it are offering discounts to drivers who are willing to share their personal driving styles with them. This is called driver telematics and can involve either having an application running on your smartphone or letting your vehicle manufacturer provide this data to your insurer. While on the one hand this can feel pretty darn intrusive, if you’re one of the folks who benefits from proving how safe of a driver you are, the question remains: Are you willing to hand over this level of detail to save money on your car insurance premium?

None of these is a simple question, and unfortunately, the decision on what you provide is not necessarily even yours to make. You may be fine with providing this data. However, if your state’s department of insurance is not, you won’t have the option. At least not today. We are fast approaching a time when big data, the data that we each generate, will, for better or worse, provide a clearer picture of our personal driving habits. Imagine a time when you slam on the brakes to avoid hitting that squirrel, and after your initial thought of “whew!” you think, “Darn, this is going to raise my auto insurance premium because I slammed on my brakes.” That future is not so far off.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Karl Susman is a veteran insurance agency principal, nationally engaged insurance expert witness and broadcast host who translates insurance from jargon to judgment. For more than three decades, he's helped consumers, courts and policymakers navigate coverage, claims and compliance. As Principal of Susman Insurance Agency, Karl works directly with households and businesses to compare options and make clear, defensible coverage decisions.