Capitalism, Good Business or Greed?

Here is another case where I must question whether it is pure capitalism, good business practices, or greed that is capitalizing on those who are struggling.

Progressive Insurance

My son in Boston has progressive auto insurance. He got an email notification that his car insurance was coming due.. It was interesting to see the various payment options available for the six-month policy. I love how they thank him for being a loyal customer and then reach deeper into his pocket to extract crazy fees. It is all about convenience, and to make the burden lighter, the company needs to be compensated.

Options:

Option 1: Pay in Full – For $696.00 – This is the best deal for everyone. It gets my son the best price for coverage and Progressive the money upfront. This does mean he is “prepaying” for his insurance. If he wants to shift it is harder to do and takes about 30 days to get a refund.

Option 2 – Automatic Deductions: $864.00, which is a 19% premium over the base price.  At this rate, you are paying about the same as most credit card interest for people without great credit, so it’s not a bad option if you can’t pay the full amount up front. It is easy; you don’t do anything except make sure money is in your checking account. Progressive does have to wait for their money since most of these are paid even if you don’t have the money, and if you don’t, you get hit with an overdraft. It is automatic for Progressive, and the $1.00 cost for the digital transaction is still profitable. I don’t understand the reason for a 19% premium other than they can.

Option 3 – Monthly Installments: $1,009.00 – This represents a 41% premium. This should be against the law. I would call this a ” broke and/or no bank account penalty” since this person is broke and can’t pay all at once, does not have a credit card or bank account, and needs to call the day of the payment and pay them.

Both of the periodic payment options represent the risk of the customer not paying and the loss of a customer but, more importantly, the time value of that prepaid interest revenue. The capitalist within me finds nothing wrong with this, as you are paying for a service where you have a choice in who you do business with. However, this is a prepayment of the insurance that you have not yet used. We don’t do this with anything else.  These prepayments only seem to happen on insurance other than expensive medical insurance.

The emotional human side of me thinks it is wrong to prey on people who can’t pay for the full six months. You were laid off, had an emergency payment for a doctor or a significant home repair, and have to pay in installments – is a 41% for “installment fees” appropriate?  If they don’t pay in that month, then it gets canceled, so they can’t take advantage of the insurance company.

Fortunately, our son is doing well and learned in high school that he needed to budget and save money ahead of these large expenses so that he could pay them in full, which, in this case, he did.