Are you overpaying for insurance? Chances are, yes.

Every day, millions of consumers pay way more than they need to for car and other personal insurance. The problem? It’s an industry with lots of complexity, but little visibility — until now.

How likely is it that you’re paying too much for your insurance? This is something we’d all like to know (and rightfully should). So we decided to ask several thousand car owners to share how much they’re paying for their insurance, then set out to find better rates for them by looking at quotes from all major car insurance companies. We wanted to find out how likely people are to overpay for insurance with any given company, and also how much savings we could find on average. In this post I’ll share what we learned.

An apples-to-apples comparison of thousands of actual insurance rates.

The methodology we used was to look at the data that I generated at gabi.com — an insurance guide where people can get a comparison of rates just by providing their current insurance policy information. Our goal was to find an objective, ‘apples-to-apples’ method of comparing the rates offered by all major insurance companies.

We started by looking at customer’s current insurance documents and extracted all necessary data, such as insured vehicles, drivers, miles, coverages, violations, and current rate. To be sure we were accurately capturing their specific situation, we followed up with questions if information on the declaration page was missing. We then we ran detailed comparison analytics on our rate comparison engine across 20+ insurance companies, which allowed us to inform our users if they were overpaying, and how much they could save by switching to a different insurance insurance company.

We did this for several thousands of users in California over the past several months, comparing more than 20 insurance companies including Geico, Allstate, Farmers, State Farm, Travelers, Progressive, Safeco, AAA, USAA.

Our findings: Who is most likely to overpay?

First, let’s look into how often we were able to beat an existing rate. You see in the chart below that customers from Farmers, Nationwide and State Farm are overpaying most often. We could find a better rate for those customers in more than 4 out of 5 cases.

The insurance companies with the most competitive rates are Geico, Ameriprise, and Wawanesa. But even in that group 1 in 3 of our users is paying more than they need to. You can also see that out of the 18 companies analyzed, 15 of them have a likelihood of more than 50% of being too expensive.

Likelihood that customers will pay too much for their car insurance from a specific company.

How much are you overpaying?

Now let’s look at how much savings we found for these major insurance companies.

Farmers is again one of the worst offenders in terms of how much consumers overpaid. We found an average savings of $707 per year on their auto insurance alone (not including multi-policy discounts). This represents savings for the comparable coverage (or even better if we could not exactly match the prior coverage) offered by competing insurance companies. If your car is insured with Liberty Mutual, Nationwide and State Farm, you’ll save $500 on average. Even with companies such as Wawanesa — a company where customers would have a low likelihood of overpaying, we were still able to find an average savings of $223.

Average savings found for the same coverage (per year)

How do insurance companies get away with this?

The reason insurance companies can overcharge their customers is that the market has little transparency. It is difficult to say the least for customers to compare their rates and get a full market overview. It often entails filling out endless forms, getting spam and sales calls. It’s so intimidating, people often just give up on the process and accept a higher rate.

And, even if they’ve taken the time to compare rates and have found a rate that works, this “best” rate only has a limited shelf-life — as soon as your life situation changes (purchase of a new car, moves, etc.) or your insurance company raises rates (they will), your great rate will no longer be optimal. This means that the best strategy for not overpaying is constant (or at least regular) vigilance.

This complexity and confusion in the insurance market is the reason we started gabi.com. We believe that something this important should not be so complicated.

What does this mean for you?

Obviously, the data presented shows averages, and each individual situation is different — the “cheapest insurance company for everyone” doesn’t exist. Your car, your miles, your coverage, your driving experience, and claims history all have an impact on what any given company can offer you. Also brand, customer service and claims handling matter when picking an insurance company. That’s why we have developed our own star rating that we send out along the rate comparison.

The bottom line: it pays off to compare your rates periodically, because it is very likely that you are overpaying. In fact, you could save on average $466 per year just by taking the time to check and get a better rate. If you don’t want to do the comparison yourself (and seriously, who does?), you might want to try gabi.com and have us review your rate — this is exactly what Gabi is designed to do.

Thanks to Julian Moncada, Uwe Horstmann, Lars Kamp and Krzysztof Kujawa for their input!