July 1, 2011

How Car Insurance Company Discounts Save Insurers Money

Every driver enjoys car insurance discounts, as they're one of the fastest ways to cut insurance premiums and save money. However, many drivers don't realize that insurance providers also benefit from discounts. While cutting premiums may seem like an ineffective way to save money, a car insurance company can keep customers happy, attract new drivers and develop more accurate pricing techniques by issuing different types of discounts.

It's helpful to consider car insurance discounts from a car insurance company's perspective. Discounts are usually issued to drivers who are statistically safer, although the car insurance company might not explicitly state that this is the reason for the discount. For instance, many insurance providers offer good student discounts to younger drivers who keep a GPA above a certain level. This might seem like a simple incentive to encourage good grades, but insurance companies know that good students are much less likely to be involved in a major accident. The same is true of homeowners, parents, newlyweds and other groups of drivers who often qualify for special car insurance discount programs. By issuing specialized discounts to low-risk groups of drivers, insurance companies can get better at predicting the likelihood of accidents. Eventually, this leads to better profits and lower costs for car insurance companies.

Some car insurance discounts aren't based on statistics. Car insurance companies sometimes give special discounted rates to online buyers, simply because the market for auto insurance is much more competitive online. Issuing an "online only" discount allows a car insurance company to effectively charge different rates for the same basic service. Some insurance companies also offer discounts for drivers that use PayPal, MasterCard, Visa or another specific payment method, usually because that payment method will cost the car insurance company less money to process.

Car insurance discounts are usually offered to keep a driver from switching to another insurance provider, which obviously saves a car insurance company money, but sometimes they're provided automatically for no apparent reason. These discounts encourage customer loyalty. Drivers who regularly receive discounts might assume that they're getting the best possible rates, so they won't take the time to check around for a better policy. This is why it's important to use car insurance quotes to evaluate discounts. Drivers should look for insurance quotes on a regular basis to make sure that heir policies are fairly priced, as discounts can give a false sense of security in some circumstances. Even so, the majority of discounts are beneficial for both insurance providers and drivers, and by taking advantage of discount programs, drivers can get better coverage and lower rates.