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Lack of car insurance transparency cost consumers $101 billion

Lack of Transparency Cost Consumers $101 Billion on Auto Insurance

BEDFORD, N.H. — November 21, 2016 — U.S. consumers effectively overpaid for auto insurance coverage by a stunning $101 billion in the last five years, a new study by insurance analytics company ValChoice has found. As reported by the NY Times, roughly 90 percent of consumers could have gotten a better deal had they used a policyholder-owned insurer that pays dividends to members. However, the difficulty of comparing insurers on factors other than price prevents consumers from seeing how much value they get for their dollar. Click here for the full report and an infographic.

Clear Correlation Between Organizational Structure and Value to Consumer

How an insurer was organized affected how much of its customers’ premium payments it pocketed, ValChoice found. From 2011-2015, mutual companies that paid dividends (companies owned by policyholders) kept the smallest percentage of their customers’ premium payments, thereby providing the best value to the consumer. Publicly traded insurers kept the largest percentage, thereby providing the worst value. Privately held insurers fell in the middle.

Lack of Transparency Costing Consumers Billions

Compared to mutual companies that pay dividends, privately held companies kept an additional $43 billion in premium payments, and publicly traded insurers kept an additional $58 billion.
For households, the difference between using a publicly traded company vs. a policyholder-owned company that paid dividends equaled nearly four months’ worth of car insurance payments. On average, households that bought their auto insurance from publicly traded companies received $262 less in value per year, for a total of $1,316 over the last five years, than did households that bought their insurance from policyholder-owned firms. (The average monthly car insurance payment in the U.S. is $70 according to the most recent Insurance Information Institute data.)
“When we did our analysis, it was clear that shareholder pressure is having a material impact on the quality of the insurance protection consumers are buying,” said Dan Karr, Founder and CEO of ValChoice. “Public companies are under increased pressure to deliver profits to shareholders. With a growing number of publicly traded insurance companies, this is negatively impacting consumers. Consumers deserve to know the value and quality — not just the price — of the insurance they buy. We hope this report helps them make better decisions when choosing an auto insurer.”

A Growing Problem

For consumers, getting less value from their auto insurer is a growing problem, the ValChoice study found. Twenty-eight percent of the $101 billion consumers lost to companies that were not dividend-paying mutual companies came in 2015.
The ValChoice analysis examined the percentage of net earned premiums per year that companies paid out in loss compensation. This is known as the Paid Loss Ratio (PLR). Paying a claim would count as a paid loss, for instance. The ValChoice study found that privately held and publicly traded insurers had significantly lower PLRs than did insurers owned by their policyholders.
The $101 billion figure reflects money collected by insurers through premiums, but not paid out in loss compensation. The amount could accumulate from either charging higher premiums, or paying less to cover insured losses or a combination of the two.
The study grouped insurers into three categories:

  • Mutual and reciprocal exchange companies that pay dividends.
  • Private companies. This includes closely held stock companies, as well as mutual companies that do not pay dividends to policyholders.
  • Publicly traded companies. This includes companies that issue stock either on public stock exchanges, or that are owned by companies traded on stock exchanges.

About ValChoice

ValChoice® is the only company to provide consumers, agents and advisors with information on which home and auto insurance companies offer the best value: price, protection and service. The company’s analytics platform collects and analyzes millions of financial and complaint data points and delivers the results in an easy-to-use service that Forbes Magazine describe as “Carfax for insurance.” Using ValChoice, consumers are finally able to shop for insurance based on value rather than making decisions blindly based on price or advertising campaigns. See this video link for an Associated Press (AP) video on ValChoice.
Kelly Karr

Copyright 2016. All rights reserved. ValChoice and the ValChoice logo are registered trademarks of ValChoice, LLC.

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