Think Twice About Group Auto Insurance Discounts

Congratulations! You’ve just landed a great new job with some great employee benefits – including a discount on group auto insurance. These are a good deal, right?

Don’t cancel your existing auto insurance policy just yet. A group plan can indeed be beneficial to some people, particularly in region is where automobile rates are high. But such group discount plans aren’t always the deal they’re cracked up to be.

Frank R., a software engineer, learned this the hard way after renewing his wife, Susan’s, group insurance policy 15 years in a row. The couple originally lived and worked in New York, where Susan was a teacher, but moved in the mid-90s to coastal Connecticut.

Susan’s group plan with the union was a great deal when they lived in high-cost New York. Susan stopped working altogether after their daughter was born in 1998, but continued to keep her union membership active to benefit from the group discount for the couple’s auto and homeowner’s insurance.

The big change came in 2005, when their second child arrived and the couple moved to a more northerly, rural Connecticut town. “We live in the sticks,” Susan quips.

The couple’s auto insurance rates dropped with the move, but Frank thought the drop was rather low considering their out-of-the-way location of their new home. One day, Frank approached Paul, a neighbor who runs an insurance agency, about flood insurance.

“Bring me your group insurance policy as well,” said Paul. “We can run illustrations from a few insurers and see if you’re getting the best rate. There’s no obligation.”

Two days later, Frank purchased a flood policy from Paul – who also produced quotes from two different automobile insurers. Both were about $1,000 lower than what Frank and Susan were paying for their “discount” group insurance plan with the union. Paul also ran a third quote – from the same company that underwrites the group plan.

“It was the lowest of all three!” Frank recalls.

Before changing anything, Frank sought an explanation from the insurer. It took a week, but Paul finally got his answer. The new rate from Paul was based on a “risk pool” consisting of millions of consumers across the U.S. In contrast, Frank and Susan’s group plan had a much smaller risk pool consisting largely of people living in New York. Usually, risks spread over a larger group will be smaller, which translates into lower premiums.

“In effect,” Frank muses, “I was paying ‘New York premiums’ for 15 years after I moved to Connecticut!” The insurer agreed to reset the couple’s insurance premiums with no interruption in coverage.

However, there can be circumstances that would make if difficult for you to obtain insurance on the open market. Such factors include age, a low credit score, or poor driving history. In such cases it might indeed be in your interest to take advantage of that group plan at work – at least until you are older or your credit or driving history improves.

The rule of thumb here is, buyer beware. Do your homework. If your employer offers what appears to be a good deal on auto insurance, check it out. But make sure you compare rates and coverage item-for-item with plans offered by other insurers. You may find that your “group discount” isn’t much of a discount at all.