Why Is Geico Auto Insurance So Cheap?

Written by James Hirby and Fact Checked by The Law Dictionary Staff  

Geico Insurance operates in a "gray zone" between full-service auto insurance providers like State Farm and cut-rate providers like The General. The company touts its reputation for providing low-cost auto insurance policies that offer solid coverages. More importantly, it emphasizes that it has the ability to handle complex claims and provide favorable outcomes during disputes over the assignation of faults and payouts. In other words, Geico's advertising campaign is predicated on its ability to offer its policyholders a happy medium between service and value.

Upon closer inspection, this arrangement appears to be flawed. While it's true that Geico is often the cheapest national provider, its policies' actual premiums may hinge on a wide range of factors. It's important to remember that there's a distinct difference between quoted auto insurance premiums and ongoing or post-renewal auto insurance premiums. In many cases, insurance companies attract new customers by offering shockingly low rates for the first year of coverage. Once these new policies come up for renewal, they're often reissued at far higher rates.

If you've experienced such an unexplained premium increase as a Geico customer, you may have been caught off-guard. In most cases, Geico's pricing department can point to specific causes for such increases. These might include minor accidents, speeding tickets, or "new information" that wasn't caught on a pre-approval background check. While this can be frustrating, the company reserves the right to raise its premiums at any time. Since the auto insurance industry is wildly competitive, its policyholders are free to find other sources of coverage.

However, most national auto insurance providers follow Geico's basic template. It's not uncommon for providers to raise their policyholders' rates by 30 to 60 percent at the first indication of risky behavior. Even if you choose to leave Geico after a bad pricing experience, you're liable to run into the same problem with your next provider. This is simply the way in which the American auto insurance industry operates.

In fact, you might be better off in Geico's fold. Geico tends to offer many discounts that full-service providers have eschewed. For instance, the company's "safe driver" discount is nearly as robust as State Farm's much-touted bonus. Even better, its "good student" discount is deeper and longer-lasting than most other such discounts. What's more, the company enjoys high customer-satisfaction metrics and operates a well-staffed claims department that's recognized for providing attentive service. By contrast, many discount providers are reticent to pay out on their policyholders' claims.

More On This Topic



Comments are closed.