Auto insurance is one of the most profitable sectors of the insurance industry. Every car owner in the US needs to pay an average cost of $1,099 annually to secure his personal or commercial vehicle, as per some reports by Policy Genius. This sector also pegged at about $285 billion in 2019, and the current market size of the US auto insurance industry stands at $308.8 billion, according to IBIS World. Even as the impact of the pandemic continues people prefer to drive now instead of taking public transport to avoid contact with others. Under such circumstances, there will be renewed interest in the auto insurance industry. But you need to be careful while buying insurance for your new car.
For instance, the economics of auto OEMs offering insurance is in the news. It seems, only 65% of the premium goes to the loss cost with the rest spent on administrative costs and adjustments. The former head of Tesla’s insurance program made the comment that while the top 2 insurance companies spent over $ 1 billion on customer acquisition, Tesla customers just bought the insurance from them because they liked the car!
The theory is that with technology, it’s now possible for automakers to understand risk better. They can also hook up networks of repairers and customers can exercise more self-service. All this could help substantially reduce the cost of insurance for the consumer and increase profitability for the insurer (i.e. the OEM). This sounds great but the devil is in the details. Do auto companies want to become insurers when this isn’t their core business at all? Will they be able to offer the customization and personalization that insurance buyers, especially small businesses, need? American consumers value options, how will they, in the long term, take to being forced to consider only one insurance option for their vehicle? Questions abound and clarity is still awaited.
In the same space, many car dealers have tie-ups with reputed insurance companies that allow them to offer auto insurance to new buyers. This saves the time of the buyer, who is quite excited to take the new car out of the showroom and onto the road. It also gives attractive discounts, as both the ownership and insurance come in the same deal. But if you ask me, I have some inhibitions regarding the automakers’ insurance covers and in this post, I’ll try to explain why you should have them too.
Lack of flexibility
As these dealers usually have tie-ups with big-name insurance companies, their covers are not customized to meet your specific requirements. They are only free to offer you what is the standard template and nothing more. You may not also be able to buy from any other insurer than the companies the dealer recommends you. Over time, when you factor in renewals and exclusions, you may even have to pay a higher premium than what you’ll pay to an independent insurer.
When you buy an insurance product from an independent insurer, you can compare the features, prices, policy inclusions, and everything else with that of other companies to make the best choice. In the insurance offered by the automaker, you can’t enjoy such freedom and have limited choices. Without comparing, you’re likely to be ignorant of the potential benefits of insuring your new car from the right insurer, and all this for what? Just to save a few minutes of your time?
Your car insurance should match your specific needs and preferences of add-ons and features that any insurer will help you pick. However, in the case of the cover offered by auto dealers and makers, you may be pushed into buying unnecessary add-ons and end up paying premiums for stuff you don’t need. As the dealers earn additional income from the commissions of the insurance products sold to buyers, they may try to influence you into buying those extra features, even citing benefits that you may achieve from those. And who better to sell stuff to you than a car salesman?
Of course, it’s not mandatory to buy insurance from your car dealer. You have a choice and you should take it to prevent getting bound to a product you didn’t want in the first place.
Indeed, the importance of getting your car insured before sitting on that driver’s seat can’t be denied. You won’t like it if your new car suffers from any damage and you have to pay extra to get it repaired. For a new car, you can also buy additional cover to replace the car, in case it suffers from damages beyond repair, get it repaired, if the damages are minor, or protect the vehicle from loan/lease gaps.
A few things you should know about insuring your car
- Eligibility – For new cars’ insurance, the vehicle shouldn’t be more than 3 years old. The special ‘new car’ insurance is only valid as long as your car is eligible for it.
- Ownership – Only the true owner of the vehicle can be the policyholder of auto insurance.
- Liability – You should get your car insured with this policy to cover for the expenses regarding damages to others’ cars and/or physical injuries.
- Comprehensive coverage – Don’t get misled by the term ‘comprehensive’, as this insurance only covers your vehicle from most kinds of accidental damages that are not done by other cars.
- Personal injuries – Some states also require the car owner to buy this insurance to cover the medical expenses of his/her physical injuries in an accident.
- Collision coverage – Most people mistake it for the comprehensive insurance, which covers all damages except the ones causing by collisions. This is where the collision coverage comes into play. Again, it doesn’t cover the damages caused by colliding with other cars.
Other insurance protection works in many states, like gap insurance, flood insurance, and medical payments coverage. The last one is applicable for passengers (or people) in your car at the time of the accident, as commercial vehicles need to get this insurance for maximum protection.
A tiny bit of advice
Obviously, it’s critical that you know exactly what you need to avoid making a bad investment. I think you should explore all your options carefully and don’t make a decision in haste. Although buying the insurance from the auto dealer itself may seem easy and time-effective, it may not turn out to be the best decision for your vehicle. Compare products, prices, and features offered by multiple insurers before you protect your new vehicle.