When e-Insure launched its first website in 1996, the process of buying auto insurance online was bumpy at best. Since then, an increasingly competitive marketplace has honed this process to a high level of efficiency, so much so that most consumers can purchase a complex auto insurance package with just a few minutes' effort.
On the flip side, purchasing auto insurance online has become so easy that some consumers find themselves clicking the buy button without having achieved a particularly clear understanding of the product they are paying for. The purpose of this article is to highlight some issues unique to the online auto insurance purchasing experience, with the goal of reducing the unpleasant element of surprise experienced by some online shoppers.
Online Insurance Shopping: A Brief History
Almost from the beginning, as companies experimented with selling insurance online, a distinction arose between websites representing insurance portals and insurance agents. Online, an insurance agent is precisely the same as its bricks-and-mortar counterpart: it offers a more or less comprehensive menu of insurance products and services from a single insurance provider. By contrast, an insurance portal typically operates on a pass-through basis, generating referrals for multiple insurance agents and providers while offering no insurance services of its own. For the consumer, the most important advantage of using a portal is the ability to make apples-to-apples comparisons between similar insurance products from multiple providers.
In either case, consumers quickly learned to demand price quotes in real time. The data were there; indeed, many insurance providers already made quote engines available to their telemarketing staffs, so it was relatively trivial to make such information available to online shoppers.
The difficulty with this model was that a particular insurance quote depends on a large number of variables, the specifics of which vary depending on the product and the provider. As a result, a consumer interested in comparison shopping among online agents found himself completing multiple, slightly different applications, all of them fairly involved.
Portals faced a dilemma: collect enough information to facilitate a quote from multiple providers, but not so much as to anger potential clients faced with filling in redundant applications following referral to an agent. Simple economics saved the day: as insurance gradually achieves the status of a commodity, consumers are effectively guaranteed similar pricing on similar packages. As a result, portals could select an agent based on very little information”typically only the shopper's insurance requirements and location”and send the client off to complete a full application with a high degree of confidence that the quoted price would be a fair one.
So what is the state of online quoting today, and how can you get a reliable quote for your auto insurance needs on the Internet? There are dozens of auto insurance providers on the Web, but regardless of which you choose, the process is effectively the same.
Start with an insurance portal, rather than an agent. Because most carriers have a limited number of insurance plans available in a given state, you will find a broader selection of options at a portal that represents multiple insurance providers. This is particularly important in states where political and regulatory pressures on the auto insurance space have reduced the number of options available from any given provider.
Privacy & Security
Some portals accept an abbreviated application and relay the information to a number of insurance companies for quotes. Others record only your registration data, and then pass you to a product-specific website to fill out a complete application. In the first case, both the portal and the insurance provider will have access to the majority of your personal information, while in the latter case this information resides only on the insurance provider's servers.
Ultimately, you can estimate the security of your personal information with respect to a given insurance provider by examining its financial rating. An excellent rating—meaning an A. M. Best rating of A- or better, a Standard & Poor rating of A or better, or a Moody's rating of Aa3 or better—effectively guarantees that a provider stands to gain little by abusing your personal information. Most providers who enjoy high ratings feature them prominently on their websites.
Some portals and carriers have very interactive applications, and some have more static applications. The static applications will be somewhat less enjoyable, as they may ask you questions that are not applicable, and may not be able to digest your information on the fly.
In any event, you usually must complete an application of some description before you can get an online or agent-assisted quote. The more complete your application, the more likely you will get an accurate quote. Beyond information about yourself and your driving record, most applications require your vehicle's make, model, age, and VIN (Vehicle Identification Number). If you have an existing policy, it often helps to have a copy of that policy available for reference during the application process.
Although it is often possible to vary one's answers to see the range of quotes available, an erroneous or inaccurate application often results in reduced or withdrawn coverage. As with any other business dealings, honesty in the insurance application process is always the best policy.
The cost of insurance is a function of risk. An 18-year-old male with a history of traffic accidents will pay far more for insurance than his father, even though they may drive the same vehicle. Despite the various rules of thumb out there—the "red sports car premium," for example—the rules used by insurance companies to price risk are generally so complex that the consumer's best policy is simply to answer all questions as accurately as possible. The good news is that, given the commoditization of insurance products described above, equivalent drivers can expect to pay roughly equivalent premiums regardless of provider.
Some drivers—especially those classified as "high risk"—will find it difficult to locate coverage at any price, particularly in states with more complex regulatory environments. In recent years, such demand has prompted the establishment of insurers who specialize in such difficult-to-insure demographics. A good portal will assist shoppers in locating such non-standard service.
Acceptance & Payment
Many insurance shoppers are surprised to discover that, despite the technical sophistication represented by online portals and quote engines, most insurance providers are still unable to accept payment and issue coverage via the Internet. GMAC Insurance is a notable exception; most other insurers culminate the on-line application process by mailing a package for your signature.
Despite the comparative inconvenience of mailing a paper check, at this point there is not a good correlation between the technological capabilities of an insurance company and financial strength or quality of customer service. Some companies that work only through human agents—who will telephone the prospective client to complete the process—are also very large, healthy, and stable insurers. The bottom line: evaluate a prospective insurer on its financial strength and the relevance of its package, not on the sophistication of its website.
Insurance Cards & Policy Receipt
An increasing number of insurers make insurance cards and policy documents available for download from their websites. In most cases, however, these and other documents will arrive by regular mail. Since every state requires a driver to present proof of insurance on demand, we suggest that clients whose providers do not make these documents available for download take the time to request a faxed copy until such time as the originals arrive in the mail.
Shopping for auto insurance on the Internet is easy, fast, and a very effective way to find a precise fit for your insurance requirements. Insurance is a complex product, however, and over the long term the quality of a buyer's experience will depend at least as much on an insurer's financial stability and level of customer service as it will on the price of the policy. A high-quality portal is one that pre-selects providers in order to present clients with a menu of consistently high-quality alternatives.
Best's Financial Strength Rating Definitions. Article describes the various A.M. Best financial strength ratings, and the criteria that define them.
Moody's Financial Strength Rating Definitions. Requires registration. Article describes the various Moody's financial strength ratings, and the criteria that define them.
Standard & Poor's Financial Strength Rating Definitions. PDF (1,336K). Article describes the various Standard & Poor's financial strength ratings, and the criteria that define them.