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Here’s Why You Can’t Actually Negotiate Your Insurance Rates

Trying to negotiate your insurance rates is like trying to negotiate your taxes -- you just can't do it.

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Perhaps brought on by misinformation on the internet, there’s an entrenched myth about insurance rates that plague licensed insurance agents nationwide. But just like myths in other industries -- be it healthfitness or credit scores -- it’s just not true.

Here’s the myth: You can negotiate with your insurance company to get a lower rate. The persistence of this myth is likely related to the misunderstanding of some basic insurance terms that, though often used interchangeably, actually mean different things. 

We break it all down below. 

The difference between premiums and rates

When you purchase insurance, your premium is the money you pay, usually monthly, for your policy. Your insurance rate is a more esoteric, industry insider term that refers to how much it costs the insurer to cover a specific set of losses. How much you pay in premiums is based on your rate, as well as a number of other factors.  

For example, if you have $2,000 worth of jewelry you want to insure and your carrier’s rate is $20 per thousand dollars of insured jewelry, you’d pay a $40 premium.

Rates aren’t negotiable. In fact, each US state has a regulatory body, most commonly the state’s department of insurance, that approves rates set by providers, according to Janet Ruiz, a chartered property-casualty underwriter and director of strategic communications at the Insurance Information Institute

Admitted carriers must file with the state when they want to make changes to coverage rates, regardless of whether it’s an increase or decrease. “And then the state actually has the opportunity to go through the filings to determine whether it’s a reasonable and fair rate,” Ruiz said. “So that’s one reason why you can’t negotiate rates.”

States regulate insurance to protect customers, “with regulators and the insurance industry working collaboratively to create a healthy insurance marketplace in each state,” said Chris Donahue, chief underwriting officer from Hippo Home Insurance. “This collaboration includes establishing and maintaining fair and adequate rates -- but also involves developing quality products and services that reduce losses for consumers.”

Comparison shopping isn’t the same thing as negotiating

Part of the negotiation myth can simply be attributed to the misuse of the term “negotiating.” Though you can’t negotiate, you can do some comparison shopping for premiums or identify a discount that could lower your premium. 

And though you can’t haggle over the rate, there’s some wiggle room around premiums. 

“In general, you cannot use a competitor’s rates to negotiate lower premiums with another carrier,” said Donahue. “However, many insurance companies will aim to cut premium costs for nearly anything that could lower your risk profile.”

For example, you can adjust your coverage limits, increase your deductible, add or remove vehicles or drivers from your car insurance, or ask for a discount if you’ve bundled multiple policies or been a loyal customer. 

It’s worth noting that once you’ve purchased a policy, your insurance rate is locked in until your next renewal period. But that doesn’t mean your premium is set in stone. You can always call your insurance agent to explore a discount or modify your current policy.

The bottom line

Lower your auto insurance by taking advantage of low mileage discounts, or lower your homeowners insurance by improving your roof; there are a multitude of actions you can take to reduce your premiums with your current carrier. Or you can find a new carrier that offers lower premiums for the coverage you seek. You just can’t negotiate the rates with carriers. Be wary of information indicating otherwise. 

Based in Boston, Marcos Cabello is a personal finance reporter for NextAdvisor and CNET. Marcos has covered cryptocurrency, investing, banking, and the US economy, among other personal finance subjects. If you don't find Marcos behind his computer screen, you'll probably find him behind another screen, playing the newest Nintendo Switch title, streaming the latest TV show or reading a book on his Kindle.
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