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UPDATED: Mar 13, 2020
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Operating online instead of with dozens or even hundreds of physical locations is much cheaper for the companies, but can you trust online car insurance? Try our search tool today to get cheap car insurance quotes!
The Internet has changed the way that many types of companies conduct their business. It has become the primary business location for many businesses that most of us believed needed to be conducted face to face only a few years ago.
Online retailing seems to be straightforward, but what about banks whose only “branch” is online?
What about car insurance companies who offer cheap car insurance quotes? Compare FREE car insurance quotes today with our ZIP code search!
State Car Insurance Laws
Each state regulates car insurance according to each state’s laws and the preferences of the people or the politicians of each state. Each state maintains a regulatory body known as some type of insurance commission. Though every state does not use those specific words, every state maintains that type of regulatory car insurance oversight agency.
Each state licenses car insurance companies to operate within the state, and the site of operation is determined by the state in which the vehicle being insured is registered. This means that an insurance company licensed by the state of Wyoming but not by the state of Illinois cannot insure a vehicle that is registered in Illinois.
By the same token, an online car insurance company that is not licensed to operate in a specific state cannot sell any car insurance policy for a vehicle registered in that state.
Implications for the Customer
What this means for the customer is that if he chooses an online car insurance company to provide the vehicle insurance required by the customer’s state, the customer can be assured that the car insurance company is licensed to operate in the state in which the vehicle is registered.
Certainly some unethical company could take money and fail to provide insurance, but the consequences are not worth the risk. That type of operation constitutes fraud, and likely would open the company to several types of civil charges as well.
The total potential cost of fines, court fees and likely loss of license in several other states is not worth any gain that such a company could realize by selling bogus car insurance policies.
Increasing numbers of car insurance companies have been trying to reduce the number of physical offices they operate. It just makes no sense to pay labor and overhead costs of a physical location when the company can substitute a single website and a call center for those who need to speak to a live customer service representative.
Directing customers to a single website is a much more cost effective approach to the customer service side of the car insurance business.
Some car insurance companies maintain physical offices in larger cities but offer no direct presence in smaller towns. Geico is one of those companies. In that company, the relatively few physical offices are not insurance agencies.
Rather, they employ a few people who can answer customer questions and direct the customer to the company’s website for payments, policy changes and claim filing.
Those offices also have computers that customers can use, with or without coaching from employees on duty.
At the other end of the spectrum are companies such as Allstate, which has thousands of agents across the country. Those local agents literally are only a phone call away.
Most can and will accept payments, and most know their business well enough to truly counsel customers and potential customers in matters regarding insurance coverage needs and state requirements.
Even at that level of service, however, Allstate also operates online and appears to be moving more in that direction.
Car Insurance Cost Issues
It would seem that car insurance companies operating according to the approaches either of Geico or Allstate would offer premium prices that reflect higher or lower operating costs. That is not always the case, however. State regulatory agencies establish the minimum liability coverage levels that each licensed company must offer when doing business within the state, but they do not set any price controls.
At least two states attempted to set maximum prices in the past, with the result that many of its leading car insurance companies stopped doing business in the state.
Massachusetts provides a solid example of why no car insurance customer wants the state to set premium price ceilings for car insurance companies. It did that several years ago. The response of most of the national companies was to exit Massachusetts. With many of the leading companies gone, the state had to relent and return to allowing businesses to set their own prices according to market conditions.
By then, the smaller companies remaining were free to raise their prices because so many Massachusetts drivers were scrambling to find new insurance companies quickly. Prices continued to increase in the face of heightened demand and reduced supply. Eventually, some of the national companies that had exited Massachusetts began to return, and consumer prices began to decline.
The Massachusetts experience occurred a decade ago, before car insurance began being widely offered online. The companies that left the state still were licensed to operate there. Those that had online sales and service capabilities were able to continue their business there, even though they did not maintain physical presence in the state.
The Massachusetts example is extreme, and other states are not likely to follow that state’s example. Any car insurance customer can benefit from comparing prices periodically, however. Prices are market driven, which means that companies will set their prices at levels that customers will pay.
Many car insurance companies will increase rates on renewal anniversary dates. If an existing customer brings a lower quote from a competitor, however, his current company is likely to meet that quote so that it can retain the customer.
Comparing prices does not require changing companies, but it provides the customer with some valuable information. It lets the customer know what other companies are charging, and it gives the customer a bargaining chip if his preferred company charges more.
Whether the customer chooses to remain with the current company or change to another one, the customer can save a significant amount of money over the course of a year.
Trusting Online Car Insurance Companies
So can customers trust online car insurance companies? The short answer is yes, and so is the long answer. All of the leading national companies not only operate online, they also prefer to operate online because of the lower cost to them. Compare quotes today and save – it’s FREE!
There are many more companies that operate only locally or regionally, whose names may not be familiar to everyone comparing prices online.
If they do not refuse to write a car insurance policy for the state in which the vehicle is registered, then the customer can safely assume that they are licensed to operate in his state.
If there is any question, the state insurance commission will provide a list of car insurance companies that it approves for operation within the state.
There is no trust problem to avoid. All that insuring with an online car insurance company means is that the customer may gain much lower rates, and may even gain better customer service. See how much you can save by comparing cheap car insurance quotes with our ZIP code search today!