Here is what you should know before shopping for car insurance

Justin S
Created by: Feb 18, 2026 | Modified by: Feb 18, 2026

Driving her late-model Toyota Rav4, Jennifer swerved to avoid an animal crossing the road on a rural road and ended up slamming hard into a light pole, effectively distorting her vehicle. While she walked away from this accident with nothing but a couple of scratches, her little SUV was totaled. While this experience was very traumatic for the young college student, unfortunately, it was just the beginning of her nightmare. Her insurance company denied her claim, citing a policy loophole that left her with a worthless car and a $28,000 loan balance. Jennifer's story isn't unique; it's a harsh reminder that when it comes to car insurance, the lowest price often comes with the highest costs and complications.

The car insurance industry has changed dramatically over the past decade. While the national rate average dropped 6% in 2025 according to Insurify's industry report, the gap between cheap and quality coverage has never been wider. Today's insurance is a landfill full of gotchas and navigating that road can often be a bit daunting. Knowing the fact that the insurance market rewards informed consumers reinforces the idea that spending some time and doing some due diligence shopping for a good insurance company can save you money and a lot of headaches in the future. It is vital to look beyond flashy advertisements promising "minimum rates" and dig into what really matters when you need your policy most.

The Big Change

The change came when clever algorithms and web-based insurance companies started taking over your neighborhood insurance agencies, promising lower prices and more streamlined claim reporting services. It was not long ago that your insurance agent knew your name and showed up at your door after an accident. Unfortunately, those days are fading fast. The industry has shifted from relationship-based to algorithm-driven, with companies using hundreds of data points to calculate your premium. Your credit score, ZIP code, driving patterns and even social media activity can now impact your rates more than your actual driving record.

This transformation accelerated after 2020, when pandemic-era driving patterns forced insurers to rethink risk assessment. Companies like Progressive and State Farm invested billions in telematics programs that track your every move behind the wheel. The result? Safe drivers can save 30-40% through usage-based programs, but privacy advocates warn about the surveillance implications.

The claims process has also changed. J.D. Power's 2025 customer satisfaction study revealed a growing gap between traditional insurers like State Farm and direct-to-consumer companies like Progressive. While State Farm maintained strong satisfaction scores through personal agent relationships, Progressive's digital-first approach left many customers frustrated during complex claims. The consensus is that the digital loss reporting method can make it much more difficult to get a support agent on the phone, making the claim reporting process more time-consuming and complicated.

The Hidden Truth About Claims Processing

The truth of the matter is, as almost anyone that has ever filed an insurance claim can attest, the moment you file a claim, you enter an adversarial process where your financial security depends on your insurer's willingness to pay. Consumer Reports' 2025 investigation found that denied claims increased 23% over the past two years, with many denials based on technicalities that customers never understood.

Take the Michigan family whose Geico claim was denied after a Christmas Eve accident because their infant children weren't specifically listed on the policy. It really did not matter that the family had comprehensive coverage and had been with the company for years; the company still refused to pay $15,000 in damages. This was all because the parents hadn't listed their 1-year-old and 3-month-old as "regular drivers." The family eventually found resolution after media pressure, but not before facing financial hardships caused by being out of a car for an unexpected amount of time.

Insurance companies have really tightened their belts over the last few years. Approximately 1 in 7 legitimate claims face initial denial, requiring customers to appeal or seek legal help. This isn't accidental; it's a business strategy. Insurance companies know that a significant percentage of denied claims will never be appealed, saving them billions annually.

Three Critical Factors Beyond Price

1. Check the company’s claims. Handling Reputation

When shopping for insurance, most people compare prices and coverage limits. The issue is very few consumers actually check the company's claims-handling reputation. This one single check can give you a more complete understanding of whether the company will stand behind their promises if, God forbid, something happens. Knowing if your company will protect you when you need it can give you some peace of mind, as the difference between a company that pays claims fairly and one that fights every dollar may cost you tens of thousands in additional legal fees, lost time and cause stress.

Consumer Reports' analysis of claims settlements shows dramatic differences between major insurers. Companies like USAA and Amica consistently rank highest for fair settlements and smooth processes, while some budget insurers have denial rates approaching 20% for comprehensive claims. These patterns persist year after year, suggesting systemic differences in corporate philosophy rather than random variation. This is why it is vital to read the consumer reviews and choose an insurance company based on their reputation, not solely on policy quotes.

2. Check the insurance companies’ financial stability

The last thing you want is to find out the hard way after you file the insurance claim that your fly-by-night cheap auto insurance company is insolvent and will not be able to pay you for your claim. The industry has seen increasing instability, with smaller companies being absorbed by larger players or dissolving practically overnight. This uncertainty can affect service quality and claims handling philosophy.

A.M. Best's 2025 financial strength ratings revealed concerning trends among some budget insurers, with several major players receiving downgrades due to excessive claims losses and inadequate reserves. These financial pressures often translate to more aggressive claims denial practices as companies struggle to maintain profitability.

Consider the case of California's largest homeowner's insurer, who implemented aggressive cost-cutting measures that led to mass employee departures and delayed claims processing. It was not uncommon for customers to wait months for claim adjusters, only to have their claims denied for increasingly creative reasons. The company saved money in the short term but destroyed its reputation and faced regulatory intervention.

3. Check for coverage gaps

Many consumers don't realize they're underinsured until it's too late. State minimum coverage requirements haven't kept pace with rising vehicle costs and medical expenses. Due to inflation and other factors, a lot of bare bones coverage policies that met legal requirements in 2020 might leave you catastrophically exposed today.

Gap insurance has become increasingly important as vehicle prices soared. With average new car prices exceeding $48,000, the cost of replacing that car is higher than ever before. Further exacerbating this situation is the fact that many buyers finance 100% or more of the purchase price; standard insurance often doesn't cover the full loan balance after a total loss. Gap insurance offered by reputable insurance companies is one of the best ways to mitigate the risk of being stuck paying the difference when a claim goes over the maximum policy coverage limit. However, this is an optional add-on that many budget-conscious buyers decline, only to face thousands in remaining loan payments after an accident.

Granted, gap insurance is not always a good add-on, as it depends on how much equity the buyer may have in the car, how much driving they do and other factors; it may be a good fit for many modern consumers.

The pros and cons of modern car insurance technology

While new telematics programs promise significant savings for safe drivers, they also create new risks. These programs usually include a device that tracks a large number of inputs to identify the driver’s habits and identify risk factors. These clever devices do not just record and track your speed and braking but also when and where you drive. Insurance companies have identified that it is not just how you drive the vehicle that affects your potential of loss and risk; it is where you drive and at what time. In fact, if you opt into one of these telematics discount programs, even as a perfect driver you can have an increased risk rating just because you do night driving through certain neighborhoods and this can increase your rate, regardless of your driving style.

Usage-based insurance has expanded beyond simple mileage tracking to include behavioral analysis. Progressive's Snapshot program now factors in phone usage while driving, aggressive acceleration and even hard cornering. While this can reward truly safe drivers, it also creates a surveillance state where every minor mistake affects your rates.

The privacy implications extend beyond insurance. Data from telematics devices has been subpoenaed in divorce cases and criminal investigations. To understand if these programs are right for you, ask yourself one simple question: “Is getting a 5% discount on a policy worth my insurance company knowing where I go and when I go there?” Also keep in mind as technology evolves, so does how the data companies collect and use it and it is very possible that the information collected about you today could be used against you in ways you never anticipated in the future.

How to make an informed decision

Start by determining your actual coverage needs, not just state minimums. Consider all the factors: vehicle price, amount owed to the bank, your assets, income, and personal risk tolerance. Keep in mind a $50 monthly savings on premiums could cost $500,000 in uncovered liability after a serious accident. Most financial advisors recommend at least $100,000 in bodily injury liability per person and $300,000 per accident, plus $100,000 in property damage coverage.

Research companies through multiple sources. Check your state's Department of Insurance website for complaint ratios and financial data. Read recent customer reviews focusing on claims experiences. Consider working with an independent agent who represents multiple companies and can explain coverage differences.

Get quotes from at least three different types of insurers: a traditional company with agents (like State Farm), a direct-to-consumer company (like Geico), and a regional or specialty insurer. Compare not just prices but also coverage details, deductibles, and optional benefits. Keep in mind the cheapest quote often has important coverage gaps or higher deductibles that shift more risk to you.

The Bottom Line

As the insurance industry's shift toward a price-based incentive model, competition has created a race to the bottom in some market segments. Companies that compete primarily on price often achieve those low rates through aggressive cost-cutting primarily through claims denial, inadequate coverage or poor customer service. When you need your auto insurance most, like after an accident, theft or natural disaster, these savings can evaporate quickly.