Do large insurance companies offer better rates?

Rates from large car insurance companies are usually better than small ones. Large car insurance companies benefit from the volume of insured drivers and have no need for large margins.

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UPDATED: May 26, 2020

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Here's what you need to know...
  • Generally speaking, large companies offer better rates than small companies.
  • Volume vs. margin plays a critical role in deciding available rates.
  • The cost of running an insurance agency plays into the rates a company can offer.

Drivers looking for a new car insurance policy sometimes prefer to look at larger carriers, based on the idea that such carriers can offer cheaper rates than smaller companies. But the question is, is this line of thinking true?

As a general rule, larger insurance companies are able to offer better rates than smaller ones.

But remember that there are always exceptions to the rule. You may be able to find a smaller, regional insurance company with a better rate than even the best national competitor.

You can see the car insurance rates of both large and small companies in your area by entering your ZIP code right now.

We’ll discuss some of the factors that go into determining car insurance rates in relation to large companies versus small ones, but there’s one thing you need to know before you get started: Ultimately, the rate you pay for car insurance is most heavily dependent on your driving history.

If a company deems you to be an exceptionally high risk, you will pay more than someone who is considered a low risk. The best way to keep your insurance costs down is to drive safely and legally at all times.

Does volume play a role in car insurance rates?

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There are numerous factors that go into determining the cost of car insurance, and volume is a big factor when comparing large and small companies. Just like any other business, a larger company has the option of focusing its efforts on volume rather than margin.

  • Volume – total number of drivers covered
  • Margin – amount of profit made from each individual customer

Where there is greater volume there is greater potential for profit – even when the margin is lowered.

To explain this more clearly let’s use some easily understood numbers. Let’s just say two competing auto insurance companies plan to make two dollars profit on 25 policies in order to reach a goal of $50 total profit.

If the larger company grows to the extent that it covers 100 drivers, it only needs to earn $.50 per policy to make that same $50. A company with only 50 customers must earn $1 per policy. Using this math, it’s easy to understand how the larger company can afford to charge less.

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How does the cost of doing business factor in?

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The cost of doing business is one area that may prevent a larger company from offering lower rates than the smaller one. It all depends on an insurance company’s business model.

When we talk about the cost of doing business, we are referring to what it costs an insurance company to:

As long as a large company gets a good handle on its business expenses and keeps its overhead low, the cost of doing business shouldn’t be a problem.

However, there may be some smaller companies that have automated almost their entire business, thereby reducing their overhead and total costs. In such a case, this smaller company might be able to get away with offering lower rates than its larger competitors.

And in the car insurance game, where competition is so stiff all across the country, the company that can reduce its cost of doing business stands a better chance of survival.

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I’ve heard that larger insurance companies just rip people off– is that true?

Unfortunately, the social and political environment present in the United States over the last 30 years has fostered the belief that large corporations are greedy monsters simply trying to rip off their customers at every turn.

Although this sounds logical, it really is not.

Insurance companies, like any business, exist to make a profit for company owners. But if the company chases away all of its customers by ripping them off, there will be no one to buy policies and no profit to be made.

While it’s true that there are insurance companies that resist paying claims at every turn, it’s also equally true that there is a large number of drivers who attempt to take advantage of their insurance companies, according to the National Insurance Crime Bureau.

Therefore, insurance companies must take a defensive role when it comes to paying claims.

With the courts, lawyers, and consumers clearly stacked against them, insurance companies have no choice but to stand their ground.

As a general rule, most car insurance companies don’t mind paying out claims that are legitimate. Obviously, there are some companies that do this better than others.

One of the hallmarks of a good car insurance company is that it responds well to customer needs and pays legitimate claims in a fair and timely manner. Companies that operate this way often have very high volume and can offer lower premiums as a result.

Our FREE search tool will help you find affordable car insurance rates in your state as soon as you enter your ZIP code.

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