If you watch television, surf the web or listen to the radio, you’ve probably run across an advertisement for GEICO. As a company that focuses primarily on direct sales, GEICO has an aggressive marketing campaign combining humor and a familiar catchphrase: “15 minutes can save you 15% or more on car insurance.”

This leaves many drivers wondering whether that’s true and how GEICO can afford to offer cheap premiums. The truth is that there is no guarantee whether any individual company will be more or less affordable than another; some people may have low rates with one insured and higher rates with another, while a different person will have the opposite situation. This happens because different insurance companies weigh factors differently, so what’s important to one company will be less important to another.

How GEICO Keeps Costs Down

When it was founded, GEICO originally only served government employees. This small risk pool allowed the company to operate with minimal costs as government workers are a small group of people and tend to get into statistically fewer accidents than other professions. As the company grew, it began to branch out and offer policies to others by utilizing the Internet and direct sales techniques.

Today, many people still purchase GEICO policies online or over the phone rather than at an agent’s office, although the company has started utilizing some agencies in recent years. Using call centers enables the company to keep its costs down as there are fewer employees to pay, and their claims system is very efficient. This helps keep their operating costs low so that they can apply savings toward customers.

Where the 15% Figure Comes From

Another way that GEICO and other insurance companies can afford to offer discounts is by selectively choosing which drivers to insure. When a driver submits for a quote online or over the phone, their risk factors are calculated and their rates are compared against other insurance companies for the same group of people. This means that if a company wants to attract a specific demographic of drivers, it needs only to see what other insurance companies are charging that group and reduce the price for that population of drivers.

For example, if an insurance company wants to primarily attract married drivers in their 40s without teenaged children, it will determine what other insurance companies are charging for policies for that demographic. The company will then reduce its rates for people who qualify and keep other rates the same.

The general amount of the discount in this situation is 15%, which is why GEICO can make the claim that drivers who switch may be able to get that rate. This reduced cost is only applicable to people within the insurance company’s chosen demographic; other drivers may pay more for insurance.

Does Everyone Pay Less for Insurance With GEICO?

Undoubtedly, many people get cheap policies through GEICO. Others may quickly discover that their rates are higher than they would be through another company, however, and in some cases the difference is substantial. Because all insurance companies handle various factors differently, there’s no way of knowing in advance what company will charge more for an individual driver.

For example, GEICO pays a lot of attention to an applicant’s credit score. All insurance companies check a driver’s credit, but GEICO tends to charge a higher rate to drivers with bad credit than some other insurers. Other companies will charge higher rates for age, driving history, type of vehicle or other factor.

When you submit for a quote online, you will be asked to supply a lot of information about yourself and your vehicle. This is used to match you with the best companies; the more specific your information, the more accurate the quote will be. Bear in mind however that the initial quote you receive online will not necessarily be the final price you pay for insurance. The online quote does not take into account your driving history or credit score, so your final rates may be higher.

For example, if you submit the quote form and are within one of the selective demographics that GEICO offers a discount to, your initial quote will be low. Once they review your application and check your driving history and credit report, however, the final rate they offer you may be higher. Be sure to discuss this with the representative when they call, and don’t make any decisions about insurance coverage until you’ve spoken with multiple companies to ensure you’re getting the best rates.

When you speak with a representative, you can also ask about additional discounts that may not have been evident from the quote form. For example, if you drive a limited number of miles each year or have taken a defensive driving course, you can bring that up and possibly reduce the cost of your insurance. By working with the representative, you can obtain the best cost on coverage; it may not be 15% less than the competitors, but it should fit into your budget.