The criteria for selecting an auto insurer involves some of the same factors one must consider when selecting a dentist. It may be very tempting to go with the low bid when selecting a dentist to clean your teeth, but that may not be the best decision when facing a root canal. Similarly, buying auto insurance is normally a decision based entirely on the premium cost until an accident makes it necessary to file a claim. Only then will a policyholder know if a discounted insurance policy was a wise decision.
J.D. Power released its 2010 U.S. National Auto Insurance Study (pdf) today and found that overall consumer satisfaction with insurance companies declined in 2010 after peaking in 2009. Overall satisfaction averages 777 on a 1,000 point scale which represents a decrease of ten points from 2009. The study measures consumer satisfaction across five factors: interaction, policy offerings, billing and payment, price, and claims. The main factor that led to the 2010 decline in satisfaction was due to price increases, which were reported by 22 percent of customers.
According to the survey, Berkshire Hathaway’s GEICO subsidiary ranked #6 with a score of 793. Progressive, GEICO’s most aggressive rival, ranked #13 at 775, just slightly below the average ranking. J.D. Power provides a sortable table that shows which insurers rank the highest for each of the five factors considered in the survey. The highest ranked insurer was Amica Mutual with a score of 849.
Auto insurance is a non-discretionary purchase that all drivers are legally required to make and price is always going to be a key factor. However, the survey also revealed that service and the ability to talk to an agent can be important considerations for baby boomers. Older drivers may prefer the traditional agent relationship offered by insurers such as State Farm while younger drivers tend to be more comfortable with insurers emphasizing a heavy internet presence and a direct sales model such as GEICO and Progressive. Of course, the key test for policyholders who end up in an accident is the quality of the claims process – the equivalent of a botched root canal for drivers who select the wrong insurer.
Disclosure: The author of this article owns shares of Berkshire Hathaway.