Should I Buy Auto Insurance Online?

Our founder, Scott Boren, worked in leadership for both GEICO and Esurance, he has a deep affection for the internet and he’ll tell you there is nothing wrong if you want to buy auto insurance online.

We are fully invested in the online auto insurance experience, and don’t have any reservation selling the product online.

If you’re considering buying your auto insurance online, you need to consider if this is a good choice for you … it’s not for everybody.

Let’s walk through the things to consider if you elect to buy auto insurance online.

Can you save money if your buy auto insurance online?

The main reason folks look to the buy online is the perception that there are savings in the do-it-yourself model. Is it true, the potential to save money exists when you buy online? The direct-to-consumer distribution model, regardless of product category, is typically created because it allows the business control their costs of distribution and/or new customer acquisition.

Direct-to-consumer insurance companies reduce new customer acquisition costs because they don’t have recurring commission paid to insurance agents, and while their operating costs will likely go up to handle the customer service a dedicated insurance agent would otherwise provide, the total difference between reduced acquisition cost and increased operations cost typically lowers the insurance company’s overall costs.

So, there it is … IF the insurance company passes this savings on to the consumer … the is potential savings.

How much can I save online?

If the insurance company does pass the savings on to the consumer, the savings is actually modest.

You see, [I’m going to get a bit technical] regardless of the distribution choices of an insurance company, the claims costs, claims adjustment expenses, and taxes will be similar from company-to-company. This means the only real difference lies is in the operations and acquisition expenses. Therefore, if we assume a huge savings in acquisition and only a moderate increase in operation expenses, we estimate that the difference in overall budgetary differences would average approximately 8.8%.

So, if the average auto insurance policy costs approximately $770, you could expect to save approximately $68 per term on the average policy. Any other difference in premiums you may see are simply due to pricing choices made by statisticians or actuaries, and not related to the distribution channel choice of the insured.

What does that $68 cost the consumer? Someone has to pay it …

When you elect to buy auto insurance online, you are making a trade-off. You are going to make your insurance purchase without a dedicated insurance agent. This may be what you want, but this is a significant choice, which impacts the foundation of your family’s financial plan, so you should understand what you are electing to sacrifice for $68 of savings:

• A licensed personal advocate: Insurance is complicated, it is a contract drafted by the insurance company, and it has very objective terms that control what is – and IS NOT – covered. Each section of the insurance policy has specific definitions and exclusions, and the application forms also can excluded specific behavior or named drivers from coverage. The policy contract controls when you need to notify the company about new vehicles, replacement vehicles, when coverage applies to rental cars, loaner cars, and who is covered and at what level of liability when driving you inured vehicles.
• Your Time: If you elect to buy auto insurance online, you will need to shop with several insurance companies, compare the coverage (if you fully understand them), and make you purchase choice. This can be time consuming, if if the quote process only takes 15 minutes. You never get that time back, and an hour of your time may be worth much more than $68.
• Convenience: It may sound like the online auto insurance companies are more convenient because they have slick user interfaces and awesome websites, but if you have to do research or investigate the web page for answers, this can be inconvenient. Additionally, many direct-to-consumer insurance companies only offer one product, so if you have to purchase home and auto insurance, you have to do this all over again.
• The personal touch: You local insurance agent lives in your neighborhood, they are closer to your situation than a corporation that has a call-center somewhere in a low cost local in the mid-west. An insurance agent, if they are good, will offer you ancillary benefits, like education, additional financial services (eg Life Insurance, Annuities, or investment opportunities).
  So, if you’re going to buy auto insurance online, you need to think about these trade-offs, make sure that the savings – IF you are getting them – are really worth the modest difference in premium.

It’s now all about price

It seems like whether it’s an agency company or direct-to-consumer company, the focus has been on price and not auto insurance coverage.

We get it, insurance isn’t a tangible product so it’s hard to understand why we pay for it at all.

Somehow we need to redirect that focus. Sure price is important, nobody wants to get a bad deal. But if you’re buying cheap auto insurance, you may not be getting the coverage – the protection – you need.

It’s that simple.

Just like there is a difference between a BMW and a Kia, an Apple and an Asus, and McDonald’s and In-N-Out. The same is true between insurance companies.

Just like with your consumer packages goods, you have the low priced, cheaply made options, and the luxury choices. The options, protections and exclusions in an insurance policy vary like the raw materials, or quality of ingredients that go into consumer packaged goods or food choices.

Since a sales counselor at a direct-to-consumer insurance company is an employee, they are less inclined to offer you the comparisons between companies. Captive agents may not either, but that is a totally different discussion.

Honestly, most of the bad rap that insurance companies get has to do with consumers buying a stripped down product and being disappointed that it doesn’t perform. You want the comfort, performance and luxury of a Mercedes Benz, but you bought a Gremlin and your upset because the acceleration and ride stink.

The same is true for auto insurance.

You still want to but auto insurance online, great

If you’re still resigned to buy auto insurance online, please start here, get an online auto insurance quote from Mercury Insurance first. When you work with the other companies make sure to ask a lot of questions, don’t buy if you don’t feel comfortable that the sales counselor fully understood what you wanted and provided a detailed explanation of what is covered. Buying auto insurance online is not bad, it requires that you spend the time, do the research, and make informed choices. And remember, there may not be any difference in price if you elect to work with an insurance agent … so don’t be bashful, give an insurance agent a try … you may just be impressed.