Tuesday, April 8, 2008

A Rewards Plan for Auto Insurance

Allstate Hopes Discounts
Will Attract New Customers
As Premium Increases Slow


Taking a cue from the credit-card industry, Allstate Corp. unveiled auto-insurance plans that give such perks as "free accidents" and discounts on deductibles or premiums to customers who pay 7% to 15% more in premiums or pay electronically.

Allstate's rewards are divvied up much like the different levels of cards offered by American Express Co., and other credit-card issuers at one time, with gold, platinum and value plans. For customers willing to pay an additional 15% in premiums, the platinum protection plan, for instance, offers a 5% credit toward the next six-month policy for every six months of accident-free driving.

Both the platinum and gold protection plans also allow customers a certain number of accidents before their premiums rise and include an immediate $100 reduction on a collision-coverage deductible.

Previously, Allstate automatically gave accident waivers just to customers in some states who had been accident-free for five years, similar to what other insurers do.

The new policies, marketed as "Your Choice Auto," are available in Oregon, Utah and Tennessee. This month, Allstate plans to start offering the policies in Texas and Arizona, and in 75% of the country by year's end. The company plans to roll out similar products for its homeowners business.

Like most auto policies, the plans offer basic liability coverage and allow customers to buy additional coverage, such as collision, based on their needs, with safe-driving and other discounts sometimes automatically offered. And as with traditional policies, the coverage and the deductible amount, along with other variables such as car type, determine customers' premiums, and whether they qualify for special rates or discounts.

But with Allstate's tiered plans, drivers can pay for discounts or rewards that they, not the insurer, picked out for themselves. Customers also can pick packages of protection beyond a standard package.

Allstate's new take on auto insurance comes as attracting customers is becoming more difficult. Increases in auto-insurance premiums have slowed amid a host of factors during the past couple of years, including a declining number of accidents and a crackdown on insurance fraud. According to the Insurance Information Institute, auto-insurance premiums will increase 1.5% this year, down from 2.8% last year. As a result, customers are less likely to switch providers in search of lower premiums, forcing the companies to look for ways other than price to differentiate themselves.

Allstate hopes to lure customers by encouraging them to consider more than just price and deductibles. The idea of the rewards plans is to give policyholders not just a choice of coverage options, but also a choice of discounts. The company expects the plans to boost its policy-renewal rate, which currently is about 90.7%.

Consumer advocates, however, warn that along with increasing customer choice, Allstate may be increasing customer confusion. "The more confusing it gets, the more likely it is people will be thrown into plans that are more expensive without knowing they have other options," says J. Robert Hunter, director of insurance at the Consumer Federation of America.

Each new protection plan comes with the coverage choices of Allstate's standard insurance policy, including liability. The company's average six-month auto premium is about $450. Customers of the gold plan, which is available for an extra 7% in premiums, or $31.50 on average, get one free accident over three years. (Allstate's accident surcharges to premiums typically last three years and are imposed when customers are at fault.) Platinum customers, who would pay an additional 15% or $67.50 on average, would receive perks such as unlimited accidents, among others.

Both platinum and gold customers can pay an additional 2%, or $9 on average, for coverage that would replace a new car that was totaled. The value plan adds nothing to a premium but requires customers to have their premiums automatically deducted from a checking or savings account in order to get 5% off their premiums.

There are caveats to the perks. Certain types of accidents, such as those that occur when the policyholder is drunk, wouldn't be waived.

Tom Wischmeyer, who has had a couple of "fender benders" in the past 15 years, signed up for the gold protection plan earlier this year because he felt it was more comprehensive and cost-effective. "The way I look at it, if there's an accident, your rates don't go up and if there's not an accident, your costs come down," says the 60-year-old retiree in West Linn, Ore.

Anita Sally, an Allstate agent in Bartlett, Tenn., says her sales of the Your Choice products are up 20% to 30% over sales of Allstate's standard product. She says those that buy into it tend to be younger drivers ages 18 to 20, single people and individuals who have caused accidents in the past five years. "Those particular individuals buy into it really quick," she says.

When deciding whether to opt for the new policies, consumers might want to look at their likelihood of being in an accident. Drivers age 24 and under tend to be involved in the most accidents, according to the National Safety Council. Allstate says the average driver has an accident every 10 years.


Emma said...

Thanks a bunch for sharing all the rewards programs that are offered by auto insurance companies. I have to buy a policy soon after I will purchase my car next month. This post has helped me a lot.
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odor said...

Me also.. the insurance terms are so complicated for the average people and putting all of the needed information in a one well explained post has helped me a lot, thank you very much...

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