Car insurance rates and the banks

Over the last decade, banks have been fighting attempts to regulate their ability to suck money out of our accounts without having to justify what these charges and fees were for. A classic example of this was the $30 fee for overdraft protection. When this was finally outlawed, banks lost an estimated $12 billion a year in revenue. No business can sustain losing that amount of revenue. Since we no longer borrow so much and therefore the banks also lost the high interest they had been earning, they immediately began looking around for more things they could charge us for. The most high-profile attempt was the Bank of America's proposal to charge for using a debit card. Flying under the radar, you will find there are now higher charges for replacing a lost card, depositing money using a mobile phone or wiring cash into your account.

So here comes the debate. Banks are just financial companies and, in principle, they should be free to offer whatever products their customers want to buy. So, for example, we would think it perfectly natural for a bank to offer auto loans. Why should it pass over a redline if it also offers insurance on the vehicle? Is it not the same as a regular burger joint deciding to offer a healthy salad instead of fries. We may never have thought a fast-food outlet could possibly sell a salad that tasted any good and, indeed, the reality might be bad, but does that mean it should not be allowed to sell such a tasty option? Bank of America has been offering advice on all insurance matters for years and actually selling homeowners insurance. Similarly, Chase Bank sells life insurance. The United States Automobile Association offers banking and a wide range of insurance products to the serving military and vets. Credit unions also offer insurance products. If you move across the border into Canada, banks have been selling auto insurance for years.

For the banks, this represents a good way of replacing lost revenue. Even if they do not sell the insurance directly, they still earn commission for referring business to agents or insurance companies directly. From the customers' point of view, it gives you a local bank branch to deal with instead of being stuck with large insurance corporations that have call centers rather than human beings for face-to-face meetings. Except even though some of our banks like Wells Fargo have been selling insurance for more than fifty years, there's considerable market resistance to the development of this line of business. After all, who wants to eat a salad in a burger joint? One of the key reasons is the premium rates. Although US banks could sell auto insurance at competitive rates, the actual rates charged are not as competitive as they should be. It all comes back to the need to replace lost revenue from overdraft and comparable fees.

So the next time your insurance is due for renewal and you are looking through the car insurance quotes, you might find it interesting to see whether local banks or credit unions are licensed to sell insurance in your state. If they do, it might save money on car insurance rates for a package to bank and insure with the same bank or credit union.