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Car Insurance: Save Money by Switching?

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Last Updated May 5, 2010 8:28 AM EDT

As Neil Sedaka's Breaking Up Is Hard to Do plays in the background, actor Dennis Haysbert speaks directly to the camera in his most presidential baritone: "drivers who switched [to Allstate] saved an average of $396 a year ... $473 if they dumped GEICO."

Wow, sounds enticing. And yet, auto insurer 21st Century boasts an even better deal: Its customers saved an average of $474 a year by dumping their carrier, the company says. But wait, there’s more! Drivers who switched to Progressive saved an average of $550, according to Progressive.

Are these savings figures for real?

And can you really save $400 or more a year by switching your car insurance?

After trying to squeeze the truth out of insurance companies and speaking to consumer advocates, we found that the answers are: Yes, you can probably save a lot of money by making changes, but there’s no single company that offers the best deals.

How Insurers Get Their Savings Figures

It wasn’t easy getting major car insurers to explain precisely how they come up with their figures on the amount drivers can save by switching. Every insurer submitted a written response, usually vetted by its lawyers.

Each had a similar, if not entirely transparent, explanation: The savings figures are based on an average of the savings realized by new customers who say they saved money when they switched insurers during a specific period of time. Translation: they’re not saying that every new customer saved money. They’re only reporting the average savings of customers who said they saved when they switched.

That’s why nearly every insurer can make similar claims — and nearly every insurer does. “There’s no question that Allstate has customers who saved $473 when they switched from GEICO,” says Cesar Diaz, founder of AutoInsurance.com, a site that lets you compare insurance rates in your zip code. “And it’s almost guaranteed that someone switched from Allstate to GEICO and saved $473.”

What the Numbers Don’t Say

Here’s what the figures don’t tell you: Each insurer typically seeks particular types of customers in particular neighborhoods and then offers its most competitive rates to drivers it would most like to cover. Problem is, insurers generally won’t say publicly exactly which types of drivers those are and prime prospects differ for each insurer. (Liberty Mutual acknowledges, however, that it courts members of organizations, such as college alumni groups and professional associations, the company believes represent safe drivers and urges them to switch.)

“We all like to think we have a competitive product for every type of driver,” conceded Raleigh Floyd, an Allstate spokesman. “But the reality is that not every driver hits the sweet spot for every insurer. People have to do some legwork to find that perfect fit.” And to save money.

Changes to Coverage?

Here’s something else those money-saving numbers generally don’t reveal: Exactly how the new customers saved by switching.

Some altered their coverage. Maybe they lowered their limits. Or they discovered another great way to save on car insurance: They traded in their Camaro for a minivan. Or they stopped insuring their teen, who’s now away at college. They could have saved by moving to a place where their new insurer charges less than their current insurer does. (As MoneyWatch blogger Linda Stern has noted, auto insurance in Louisiana costs almost three times as much as it does in Maine.) Or they qualified for a multi-insurance discount because they signed up for car coverage from the same company providing their homeowners. Or they snagged other discounts the new insurer offers but their old insurer didn’t.

In all of these cases, the savings didn’t necessarily come from switching to a different insurer, it came at least partly from making changes that reduced the cost of insurance.

Progressive and Liberty Mutual, however, deserve credit for the way they run their numbers. Unlike other insurers now advertising big savings, these two base their figures purely on customers who shopped on price and didn’t change their coverage.

How to Shop Smarter

It’s impossible to predict whether you’ll save anything close to $400 by switching insurers unless you call around to get several quotes, says Cheryl Belair, an independent insurance agent in New Hampshire. “Ten years ago, I could guess which carrier would have the best deal for a specific customer. Today, there’s no way to tell without plugging all the variables into the computer, and no two companies ask all the same questions,” she says.

As a result, no one insurer is the low-cost option everywhere. “We all measure risk differently,” says Dick Luedke, a spokesman for State Farm. “Our measurement may say that you’re a great risk and Allstate’s says that you’re not.” Location matters too — which is why, in an earlier car insurance piece, MoneyWatch received quotes ranging from $552 a year to $972 for the same driver in three cities around the country.

When you start looking for cheap car insurance, talk with your current agent to see how he might save you money — maybe by raising your deductible, linking your homeowners and auto insurance, or getting you other discounts. Then, as MoneyWatch blogger Jane Bryant Quinn suggests, compare rates at sites such as InsWeb, Insure.com, Esurance, and InsureOne.com. (You may need to wait a few days to get quotes back.) For quotes from Allstate, GEICO, Progressive, or State Farm, you’ll need to go directly to their sites.

Finally, call an independent insurance agent to see if he can beat the best rates you’ve found.

The key is to make sure you’re comparing apples to apples — it’s one thing if Allstate can save you money by hiking your deductible and reducing your limits; it’s quite another to knock $473 off the annual cost of the same coverage.

“Auto insurance isn’t like getting an everyday low price at Wal-Mart,” says Belair. “The underwriting process is so complicated now, no one company will always be the best price in every scenario.”

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