Even if you haven't read it, it's likely you've at least seen or heard about the article in Consumer Reports Magazine on auto insurance. I personally read it a little over a month ago, and have taken a little time to let the article and its intent fully sink in before responding to it.

It's clear by reading the article that its primary focus is on the cost of premiums to the insured. Their report had much to do with comparing major insurance companies, but there was also much to-do about credit scoring as a factor in developing a premium. Normally, when an individual is considering whether to keep or switch their insurance company, cost is one of the main determining factors, if not the determining factor in their decision. While the information presented in the article may be useful, and even new to some folks, I can't call it very complete.

Let me try to break this down in non-insurance terms, to try and relate to any of you who aren't necessarily insurance-savvy. Let's say Consumer Reports would be reviewing restarurants next – what factors might you expect them to consider in their special report if they want their readers to make informed decisions? Menu pricing? Service? Quality of food? Nutrition? Atmosphere? I think we could agree there would be a number of things to take into consideration. However, if the auto insurance article were a review of restaurants, it would have been a write-up on menu pricing, and whether or not each restaurant had a gluten-free offering. Let's talk about these things seperately:

Pricing: Is it a fair comparison?

We will probably agree that competitive pricing is extremely important – we all want to get the best deal on anything we purchase. But is price alone enough to make a decision? Let's get back to the restaurant analogy: Let's say Consumer Reports reviewed McDonald's, Ruth's Chris, Pizza Hut, Don Pablo's, and KFC. Would a price analysis be sufficient information for you to decide where you are eating this evening?

Quality of food/service aside, each of these restaurants targets a different market or demographic. Sure, they are all part of the restaurant industry, but their similarities begin to wane from there. They cater to different tastes, to different budgets, offer different speed and quality of service, and though there might be some room to argue otherwise, in general most people would expect the quality of their food products would vary as well. I don't think it would be a stretch to assert that when comparing these establishments, there is a lot to consider besides their prices.

And so it is with insurance companies. They may be part of the same industry in general, but different companies will target different demographics in which they hope to do business. Some companies could potentially offer a lower premium, but offer less service. Others may pride themselves on being a top-rated carrier by their insureds. Some companies may cater to people who want automation, while others value a personal relationship between the customer and the agent. Some may want to do business with individuals with a high net worth, while others look to serve a lower-income customer base.

Are we being too sensitive?

What about the other factor we mentioned? What about comparing restaurants based on availability of gluten-free menu items? We have established today that there are individuals who are legitimately sensitive to gluten, and would do well to avoid it in their diet. On the other hand, most of the population does not have a gluten sensitivity, and are not only are they not harmed by it, but may actually prefer a non-gluten-free menu because of the additional options afforded by it.

I am including links to the FTC and Insurance Information Institute, where you can do some further reading on the subject – you may consider these and other sources at your leisure. However, demanding legislation banning the use of credit scores when calculating insurance premiums may have farther-reaching effects than we might think. After all, this practice may adversely effect some individuals, while others will benefit from it.

Consider the fact that gluten-free food tends to be more expensive(1). While there might be some individuals who would benefit from the peace of mind knowing they will always consume food that is agreeable to them, it would make food more costly for individuals without gluten sensitivity. Similarly, with fewer factors to develop premiums with, we would find insurance companies spreading the additional cost of claims across all insureds, not just the higher-risk.

Just as there are dedicated outlets for gluten-free food, there are also insurance companies who do not use credit scores to determine their premiums. The average consumer may not know where to turn to find them, but insurance agents do.

Does one size fit all?

Finally, we should consider the fact that the restaurants listed above are national chains. While they are certainly recognizeable to most of the world, do they represent the best choice for the consumer's taste? These restaurants all have competitors offering similar products to similar target demographics. Some of them may operate in 50 states or even multiple countries, much like the establishments listed above. Others may be available only in a certain region or even a single state. The possibilities are numerous.

The same is true for insurance companies. Some of them operate across America. Others may limit their business dealings to a handful of states, or even only one or two states. Each one caters to a little bit different demographic. Some of them you may have heard of, on TV, radio, the internet, or by word of mouth. Other companies you might not have been introduced to yet. In fact, there may be dozens of insurance companies you haven't checked out yet, just as there are probably many restaurants in your own town you've never visited.

So how do you go about finding the insurance company that's right for you? You might deal with an insurance agency whose sign boasts a logo that you see on TV every day. While that might be a quality insurance company, that agent's job is to sell that company's product to every person they come across, and it may or may not be the best fit for you.

Consider talking to an Independent Insurance Agent. An independent agent is familiar with the guidelines for multiple insurance companies, and knows the type of customer each company is looking for. They can help you find not only which company might offer you the best price, but also if each of those companies offers you the level of service you want or expect. By leveraging the expertise of an Independent Insurance Agent, you can be sure your shopping experience is the best it can be.

1) Source: http://www.ncbi.nlm.nih.gov/pubmed/18783640