It is a common assumption that a big car insurance company will have cheaper rates. Is this always true? Surprisingly, the answer may be “no” – or a qualified “yes” with important details to consider.

Generally speaking, the larger any company is, the cheaper it can sell its products. Simple mathematics tells us that when you sell 1,000 units of something, you can afford to manufacture it and market it much more cheaply per unit than a company which only sells 100 units of something. The more you sell, the cheaper you can sell – in almost every industry.

This is true in the car insurance industry as well, although it is not just a matter of how many customers the company has. When a company gets to a certain size, it is able to diversify into other businesses which can begin to make more money and they can afford to offer cheaper premiums to its customers.

Does this mean big car insurance companies have the cheapest car insurance?

This does not mean that every large insurance company has cheaper premiums than every small insurance company. There are so many factors which go into the setting of premium prices that to say that any one fact about pricing is “always true” is to make a dangerous assumption.

For example, State Farm and Allstate, the two largest insurers in the nation, do indeed offer relatively low prices and great coverage – for good drivers. For poor drivers, those with DUIs or other serious offenses, or for those with very bad credit scores, these two companies can sell some of the highest-priced insurance around. Most drivers who do not meet certain standards with regard to credit rating or driving record are far better off choosing secondary insurance, which may actually be obtained for reasonable rates at some companies.

Why do most drivers choose big car insurance companies?

There are reasons aside from price to choose a large insurance company, as well. Some people pay a little extra to have the security and comfort of knowing that their insurer is not likely to go out of business, and will be solvent enough to pay any claims for which it is liable, even if there is a large-scale disaster such as a hurricane or flood.

Another reason to choose a large company is so that you can house all of your insurance products in one place and receive service from a dedicated or independent agent who focuses on only that insurance. State Farm, for example, employs its own agents, who have their own offices, and nothing but State Farm business goes on there. If you have State Farm insurance, you will be taken care of by an expert in that company’s products. Even independent agents who sell Allstate, Progressive, and Nationwide, are often highly knowledgeable about their company’s products, and are dedicated to serve customers of those companies.

On the other hand, there is also something to be said for the personal atmosphere and service you find at a very small insurance company. In most cases, small local or regional insurers know their customers by name, as neighbors and friends. For some, the risk of dealing with a smaller company is outweighed by the knowledge that this company truly has the customer’s best interests at heart. Some customers feel that large companies are too “impersonal” and will routinely try to deny claims; small companies, with employees you know and trust, are unlikely to behave in such a way.

The choice to go with a larger insurance company or a smaller one may not be easy. Of course, price is a big consideration, but if you have a very good credit rating and driving record, you may not see a huge premium difference between large and small companies. In that case, it is important that you consider your personal preferences regarding customer service. If you need the support of a dedicated agent, or if you prefer to deal with hometown friends at a small insurance company, then it is obvious that this should play a role in your decision.