Kyle Nakatsuji, CEO and founder of online insurance startup Clearcover, says there are a variety of reasons why many car insurance customers are paying more than they need to. It starts, he says, with the things that go into the cost of an insurance policy.
In setting your rate, an insurance company must measure your risk -- the likelihood that it will have to pay a claim -- and add in the cost of operating the company.
"There are a number of opportunities to reduce the costs of running an insurance company, and these operational expenses can cost consumers quite a bit of money," Nakatsuji told ConsumerAffairs.
Cost of advertising
One of the biggest expenses that insurance companies pay for is advertising. Most of the major car insurance companies have created humorous TV commercials that saturate the airwaves. Nakatsuji says these commercials are designed to make consumers think about car insurance.
"If you ask people, they will generally tell you they would like to think about insurance less, not more," he said. "But insurance companies tend to spend a lot of time and money paying for things intended to make you think about them and insurance more often."
Unfortunately, all those expensive advertising campaigns can add to the cost of your insurance policy. Choosing a company without a big ad budget might provide a better quote.
Deductibles can also make a big difference in what you pay for car insurance. By selecting a high deductible, a consumer agrees to pay for more of the damage out-of-pocket. Since that reduces the risk to the insurance company, it is willing to lower the premium.
But consumers who agree to a high deductible in exchange for a low rate must have the necessary money to meet the deductible in case of an accident. While a high deductible policy is almost always cheaper, Nakatsuji says it isn't for everyone.
"We use machine learning inside of our technology to help make smarter coverage recommendations," he says. "It's similar to what you would get if you were sitting in a local agent's office. They'd listen to information about your life, your car, and your coverage needs and make recommendations based on that."
Unnecessary coverage and shopping around
Consumers can also overpay for insurance when they purchase expensive coverage that may not be necessary. An insurance company may advertise that your rates won't go up after an accident, but Nakatsuji says consumers must pay for more than just a basic policy to get that kind of coverage.
Another way consumers can save on car insurance costs is to regularly shop around for a better deal. Nakatsuji says it's easy to get an auto insurance renewal bill and just pay it without looking to see if it has gone up significantly.
"Some companies have a rating system in which your rates go up over time, even though there has been no change in your risk profile," he said.
The Insurance Information Institute puts "shopping around" at the top of its list of ways to reduce insurance rates.
Watch your credit score
Other factors that are largely beyond consumers’ control -- such as age, marital status and Zip Code -- may also affect what you pay for car insurance. In most states, many insurance companies will also look at your credit score to determine your risk and set your rate.
Improving your score by paying all your bills on time and reducing your levels of debt can raise your credit score and help get a better rate from your car insurance company.