Educating Car Buyers to Defuse Insurance Pricing Qualms

F&I managers and sales staff aware of shoppers’ misconceptions about rising auto insurance rates may overcome buying objections and save sales or lease opportunities.

As we previously reported, the JD Power 2022 US Auto Insurance Study notes serious collisions, higher used-car prices and rising repair costs have led auto insurers to raise rates. Those increases, which Forbes reports average 4.9% across the US, have surprised some shoppers and potentially squelched some auto sales.

“As we know, setting insurance rates is complicated,” insurance expert Michelle Megna, Forbes Advisor, tells Wards. “The cost of repairs and the cost of cars are now much higher than in the past. A fender-bender can result in thousands of dollars in repairs.”

The type of car, the buyer’s driving record and the mileage driven per year are among the factors considered. Many people don’t realize insurance providers also consider their credit scores, gender, education and other non-driving factors.

Some groups push back on those factors. In New Jersey, a number of groups are pushing to prohibit factors they say result in “racist auto insurance rate setting policies,” reports NJ101.5.

“The non-driving factors have always been a bit controversial,” Megna says. “Of course, insurance companies have found that non-driving factors do correlate with the number of claims filed.”

“There has been an uptick in legislators looking at insurance rates and trying to pass bills that would prevent car insurance companies from using certain rate criteria,” she says. “So that was why we decided to do the survey. And it looks like people are softening toward insurance companies using (non-driving) factors

“The average person probably doesn’t realize the factors that go into setting rates,” Megna says. “Setting rates is complicated. Some drivers see their rates increase and wonder why that happens when they drive the same commute, the same number of miles.

On the flip side, Megna says it may surprise a Baby Boomer buying a sports car that their insurance rates are low. Forbes recently surveyed 2,000 US drivers to uncover the most controversial insurance pricing factors, which may also reveal shoppers’ lack of knowledge about actuarial science and insurance rates. Car dealers can use these findings to ease shoppers’ qualifications.

Some findings:

  • Most survey respondents (62%) reported gender should not be considered in setting rates. Although women generally pay lower rates (despite the widespread belief!) 72% of women and 41% of men believe gender should not play into pricing.
  • A total of 42% of respondents strongly agree (22%) or somewhat agree (20%) that a driver’s credit score should count toward pricing. Many insurance companies significantly weigh credit scores when devising policy prices. Forbes reports in the 46 states that allow insurers to use credit as a pricing factor, lower-credit customers pay about $1,800 more annually than those with good credit.
  • Almost half of respondents (46%) believe insurers should consider a driver’s level of education when setting rates. A quarter of respondents, 25%, did not agree or disagree.
  • Insurers should consider policy holders’ occupations when setting policy rates, say 58% of survey respondents.
  • Auto dealers concerned auto-insurance rates may scuttle a deal can take heart that only 14% of respondents believe their current rates are unfair, down from 22% in 2021. Just 5% of respondents found their rates “very unfair,” down from 9% in 2021.

Megna suggests that dealers who talk to customers concerned about rates have some options.

“I would try to educate them and explain that many factors go into setting insurance rates. Chief among them is where you live, the type of car you drive, the amount of driving experience you have, and the non-driving factors,” she says. “It is important to educate them on the complexity of rate-setting and explain ways they can reduce costs such as not speeding, working to avoid accidents.”

Another way to pay less for auto insurance is to shop around.

“In the same way you could save money by comparison shopping for a TV, you can for car insurance,” Magna says. “That is one of the ways to avoid overpaying, even as rates overall go up.”

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