Why You Should Always Get Multiple Insurance Quotes

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Maybe it’s just my healthy dose of skepticism about financial services, but I’ve always followed a best practice of getting at least three quotes whenever I apply for any credit or insurance. I’ve always figured that if I get three quotes from well reputed companies then I’m likely getting a decent deal even if I could’ve paid slightly less somewhere else. Before I began speaking with other people about finances, I assumed that most other people thought like myself. However, I learned that many people don’t have a love for finance and simply want to “get it over with” as quickly as possible. Unfortunately, there are some people who take advantage of those without financial knowledge. One recent case I learned about is a class action lawsuit by enlisted soldiers and veterans against USAA from 2021.

This post comes courtesy of a Reddit rabbit hole

I had a conversation this week about career starter loans that are available to new officers in the US when they are commissioning. For the newly commissioned officer these loans offered by USAA, Navy Federal, and other military affiliated financial companies are a great deal. They provide these new officers with $25,000-$35,000 in unsecured debt at an interest rate between 0.5-3% without any credit history required. The loans can be used to pay down credit card debt, purchase a vehicle, or even to begin investing. However, these loans are not available to enlisted soldiers. I wanted to understand why and went down some Reddit rabbit holes and found a shocking fact about USAAs automobile insurance offerings. I learned that the company discriminates based on rank, and the price discrimination is significant.

A Quick History of USAA

USAA began in 1922 when a group of US Army officers pooled their resources to self-insure their vehicles. Membership in USAA later expanded to include all military officers in the 1920s and eventually expanded to enlisted service members in 1996. The initial inclusion of enlisted soldiers in 1996 only included recently discharged veterans so membership was expanded again in 2009 to include all enlisted veterans. In the long history of the organization, enlisted membership is still rather recent.

The Lawsuit

The lawsuit I referenced illustrates how USAA serves as the parent company to several insurance subsidiaries. When a USAA member applies for insurance company, these subsidiaries do not compete to see which one can provide the member with the best deal. Instead, USAA routes a member to a subsidiary based on their rank. The member never sees a distinction between these subsidiaries as they apply through the USAA website and only see a single quote. USAA never discloses on their website or in their policy documents that they use rank in their underwriting, nor would members expect rank to be a criterion.

The class action case goes on to show that the base rates of auto collision coverage for the enlisted subsidiary are 75% higher than the base rates for officers in 2020. The only way to tell if you are covered by the substandard subsidiary is by checking your policy documents where the enlisted subsidiary with higher rates is listed as USAA-GIC or USAA General Indemnity Company

Additional Factors

In California, where this class action lawsuit is filed, there is a law that appears to make this practice illegal. However, legality aside, this practice isn’t something that I suspect anyone thought would be used as part of underwriting, is fundamentally deceptive, and is morally wrong.

• Enlisted soldiers have fewer financial resources – officers make more than their enlisted brothers and sisters and have a greater ability to pay higher premiums
• Enlisted might have less financial education – all officers hold a bachelor’s degree as that is a requirement for commissioning but not every enlisted soldier holds one. Based on average education levels it’s reasonable to assume that enlisted soldiers might also have less financial literacy. If you are not as familiar with financial topics and someone in a position of power says that USAA is great for the military, then you are more likely to believe them without verifying whether you are actually getting the best deal. This is particularly misleading because higher ranking military members might in fact be getting a great deal, it just so happens that the same base rates on collision insurance aren’t available to enlisted soldiers.
• Military status is almost impossible to change once you get out – someone who completed their enlisted contract and used their GI Bill to get a degree may not return to the military. Once you separate from the military, it is very likely that your final rank will not change. Thus, someone can be penalized with an inferior rate for a lifetime based on their decision to enlist rather than commission
• More likely to be an immigrant – there are requirements about commissioning that make it difficult or impossible for immigrants to become officers. However, those same requirements do not exist for enlisting in the military and there are many immigrants who enlist to gain citizenship
• More likely to be a minority – The class action lawsuit shows that an enlisted soldier is twice as likely to be a minority as an officer. Minorities already face discrimination in other areas of their life, this is just another example.

USAAs Enlisted Veteran Penalty. Worse than being a civilian.

The documents in the lawsuit detail how the coverage base rates differ between the enlisted and officer subsidiaries but didn’t contain information on the rates offered to non-vet members. I suspected that USAA might also filter children of officers to the favorable subsidiary, and this might give them a less expensive premium than someone who had actually served.

To test this idea, I used the alias of Ron Stimpson. In the first test, Ron left the Army as a Captain (O3) five years ago. He was born 1/1/1991 and left the Army to be closer to where he went to school at San Jose State. After looking into a few areas, he chose to settle in Martinez, CA where I used a random address in the town off of Estudillo Street for the home where he rents. His pride and joy is his four door Acura that he takes for weekend cruises around the Bay. The quote doesn’t require information about job occupation or income.

The second time, I draft up Ron Stimpson again but this time as a specialist (E4) who completed their contract five years ago. This second Ron went to UC Berkeley using the GI Bill and got a job in the tech sector. He commutes to work from the same random address in Martinez since it allows him to save on rent and he works mostly remotely. He drives the same four door Acura as the first Ron and in all ways other than rank looks exactly like the first Ron.

Lo and behold! This second Ron was quoted a higher rate than his counterpart who had been an officer. This is despite both of them being out of the military for several years and having the exact same information other than the rank they left the military at.

Last, I created a Ron who has access to USAA membership through their parent who served in the military. To get a quote for someone who did not serve in the military, you must list a real USAA member ID. So, I used my own ID which does not have a rank listed in my profile. To my surprise this Ron received a lower quote than our second Ron who served as an enlisted soldier! Yet they claim to support veterans?

Tips for paying less on insurance

In a better world this problem wouldn’t exist, and while I don’t know how this lawsuit will play out in the courts, I can offer suggestions to minimize the impact of any one company providing a quote that causes you to pay more than you need to.

• Get multiple quotes! If you don’t take away anything else, make sure to get multiple quotes. While this example focuses on auto insurance quotes, the principle can be applied to life insurance, mortgages, auto loans, and other financial products. The more people that compete for your business, the better off you’ll be
• Find a platform that will get insurers to compete for you. Credible offers a platform that has other companies fight for your business when you apply for a loan. They’ve also launched Young Alfred as a platform for insurers to compete for your home, auto, renters, and pet insurance. The more people you have competing for your business, the more likely you are to save!
• Get a quote every other year. When you remain with an insurer you send a signal that they offer you the best value. So, it’s not surprising that insurance companies will increase their rates each year you remain with them. Each individual year might not bring a huge change, but over a number of years, the increases can become significant. Therefore, to ensure that you receive the best deal, it is worthwhile to check what the market rate is every two years or so.
• Reevaluate your coverage. A 10-year-old car with 80k miles is different from a 16-year-old beater with 200k miles. If you haven’t taken a look at your coverage recently, then it could be worthwhile to reevaluate how much coverage you need. For example, you might find you’re in a better financial position and could afford a larger deductible to reduce your premiums or can even drop collision coverage entirely on an older vehicle.
• An additional quote will not affect your credit. Loan applications use a hard pull on your credit which has a small effect on your credit score. In contrast, insurance companies use a soft pull which does not affect your score. While insurance companies do take your credit into account as part of their underwriting process, they use a soft pull to get your credit information which does not affect your credit score. Therefore, the only real cost of getting an additional quote is the time it costs which these days is quite small. Even if you are considering a credit product rather than insurance, the hit to your credit is negligible relative to the cost of a higher rate,
• Check for additional discounts you qualify for. As an alumnus of George Mason University, I was able to get an additional discount with Geico in addition to the military discount they offer. Other colleges may have similar affiliations with insurance companies that can save you money as well.

There are unfortunately bad actors in every industry and just because an insurance company markets towards you or is well regarded by those around you does not mean that they will necessarily offer you the best available policy. There are several reputable national brands for car insurance like Geico or Allstate that offer competitive rates so be sure to shop around.

Alternatively, you might just decide that you’ll get a quote from USAA as an O3 rather than an E3 on your application since they don’t claim to use rank to set the rates on their policies. ¯\_(ツ)_/¯

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