Why You Should Stay Away from New Car Insurance Companies

Auto insurance companies are spending more than $4 billion a year on advertising to attract new customers, but recent J.D. Power surveys show that less than 25 percent of customers are looking to switch insurance providers. Switching your car insurance can save you money, but you should stay away from new car insurance companies with little-to-no ratings or reviews in order to protect yourself in the event of a claim.

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Tonya Sisler has a Bachelor’s Degree from the University of South Carolina in Journalism and has worked for 15+ years in management. She has also completed a proofreading certification and is currently a professional writer.

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Written by Tonya Sisler
Insurance Writer Tonya Sisler

Brad Larson has been in the insurance industry for more than a dozen years. He started out as a claims adjuster for a national carrier. He has since switched to the agency side of the business. Brad is licensed in all P&C lines.

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Reviewed by Brad Larsen
Licensed Auto Insurance Agent Brad Larsen

UPDATED: Apr 15, 2022

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Car insurance companies are spending ever-increasing amounts of money each year to attract new customers. Insurers are also investing billions of dollars in the hopes of getting existing car insurance customers to switch companies, promising them hundreds of dollars in potential savings as a benefit.

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Everybody likes to save money, but switching car insurance companies just to save a few dollars can easily turn out to be a counterproductive move. As with most service companies, initial teaser rates or new customer promotions can expire quickly, leaving customers with even higher car insurance premiums then they started with.

Massive Advertising Campaigns

Advertising Age Magazine in their February 2011 issue described an all-out advertising brawl between the nation’s top auto insurance companies.

An estimate of the money spent on advertising put the total output at $4.15 billion, more than twice what companies spent in the year 2000 and 12% higher than the previous year.

Similar increases are expected in 2012.

Marketing dollars spent for all retail categories combined, increased by only 2.7% during the same 10-year period. Auto insurance providers are eager to get their messages out to the public hoping to increase revenues in what is already a $161 billion annual business.

The nation’s top ten auto insurance companies account for nearly 70% of all the car insurance policies written each year. Since their inception, most of the big ten auto insurance concerns have relied on institutional marketing campaigns to attract and maintain their customer base; “You’re in good hands …,” or “Like a good neighbor …,” or “We’re on your side …!”

More recently, as competition has heated up among auto insurance providers, companies have turned to more recognizable and memorable comic characters to lead the charge for new clientele, including the GEICO gecko, Flo from Progressive, and Mayhem from Allstate.

This approach isn’t working out so well for the industry giants like State Farm and Allstate Insurance; combined, the two control nearly 30% of the car insurance market, acording to USA Today.

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Switching Insurance Companies

Media Post News recently cited the results of the 2012 J.D. Power auto insurance satisfaction surveys; noting that the number of customers looking to switch car insurance companies has reached a five year low. Only 25% of car insurance customers considered looking for a new provider.

J.D. Power did conclude that of those consumers who chose to look for a new car insurance company during the last year, 43% ended up changing companies!

While insurance customers can still save money on their auto premiums by changing companies, studies found that they are saving less on average than they were in the past, with about $359 in savings.

The year before, 2010, consumers who switched auto insurance providers saved $412 on average. Experts maintain that fewer policyholders are looking to switch carriers because of increased company loyalty, additional benefits and promotions that their present companies are offering, as well as the reduced savings potential.

What You’re Liable to Lose

As mentioned above, switching car insurance companies can become a costly affair if you happen to have an accident during your initial policy year or receive one or more traffic violations. If you become a greater driving risk in some way, your brand new insurance company may just decide to dump you!

New insurance companies may have no good reason to keep you on their rolls, especially if they had to dig deep to attract your business. At the very least, you may find the premium rates with your new company are likely to increase sharply at renewal time. The fine print in most auto insurance contracts allows for just such changes, should you give your provider cause.

New companies could refuse to cover an accident or provide other services during an initial policy period. You, the insured, might also discover at that point that you have signed up for lesser or reduced coverage as a trade-off for the lower premium values that you were offered.

Deciding to Stay with Your Insurer

Staying put and at least maintaining status quo with your family’s auto coverage has benefits other than initial premium savings. Many companies now offer bundle discounts for customers who have multiple policies with the same provider, such as home and life or disability insurance. More auto insurers are offering safe driving discounts to long-term policyholders with clean driving records.

Other companies, such as Allstate Insurance, will reduce your collision and comprehensive deductibles if you have not filed a claim during the policy year. Allstate boasts that they will send policyholders a rebate check once or twice a year just for being safe drivers. In all, Allstate advertises more than 15 ways for their existing customers to save money on car insurance.

Other ways for your current car insurance provider to save you money is with pay-as-you-go pricing. Companies like State Farm, with their Drive Safe and Save program require consumers to report their actual mileage and driving habits to the company on an ongoing basis.

Customers who drive safely and report fewer miles are then afforded big discounts, in some cases amounting to 50% of their annual insurance premiums using pay as you go programs!

Other companies have jumped on the bandwagon with similar consumer oriented initiatives including Progressive Insurance. Progressive now markets their own patented “Snapshot” monitoring device and offers policyholders the chance to save as much as 30% on annual premiums.

Another way to save with your old car insurance company is with accident forgiveness. Nationwide Insurance rewards its long-term customers by forgiving a minor accident claim, even a mishap caused by a new teenage driver on the policy. Accident forgiveness may not be available in all states.

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It’s Not Hard to Switch

Many car insurance ads tout big savings if you’re willing to take the risk and switch companies. But consumers should be wary of the many conflicting offers available on the market and should use the resources at hand, especially comparison websites on the Internet to get free and instantaneous insurance quotations.

Switching auto insurers can be easy to accomplish, even during the middle of a policy period. Insurance providers can cancel your policy should they choose to, and you have an equal right to cancel your coverage with them and move to a new company. In most cases you must give your present provider proper notice before terminating your coverage. This usually consists of written notification in advance of the cancellation date.

Be careful however. If you are without coverage for a period of time, you will more than likely be penalized when you do reinstate your coverage or seek a new car insurance policy. You might even spend a number of months in your state’s assigned risk pool, paying exorbitant rates, if your previous coverage lapsed for a period of time.

You Could Save Money Switching

In 2010, CBS News published an article revealing some of the ins and outs of the insurance industry’s attempts to move consumers away from their old insurance providers. CBS wondered how real the ads and the advertised savings were.

CBS News discovered that the savings claims were often based on just a few customers that had actually saved that amount by switching companies. In this manner, every insurance company can make the claim that at least one customer saved a bundle by switching to their products.

Listening to the ads on TV, consumers naturally assume that they will save the same amounts. This is simply not true according to CBS. To make these claims, insurance companies select only certain types of customers in certain regions or neighborhoods. They don’t really target all drivers in their campaigns; only certain driver profiles will fit it with the companies’ offered discounts and preferred rates.

As noted above, CBS also discusses the possibility that consumer savings may come from changes in coverage or other policy adjustments, and not just for simply switching to a new insurance carrier. The way to avoid this is to compare auto policies with the same or at least very similar coverage features.

Another important note to remember, auto insurance coverage, rates and offerings can vary widely from region to region and state to state.

One driver, looking for insurance quotes in three different cities in the U.S., found that insurance rates ranged from $552 per year to $972 per year, for the exact same coverage!

You might be able to save a few dollars initially, but as we’ve seen, staying with your present car insurance can have even larger benefits and amount to savings that are more significant over the long term.

In any event, auto insurance is a costly yet necessary part of life. Care should be taken when shopping for coverage to explore all possible avenues. The safety and financial security of you and your family is worth a little extra time and perhaps a few more dollars in premiums.

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