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If you fail to regularly shop around for the best price on homeowner and auto insurance, you're likely to get PO'ed -- "price optimized" -- and end up paying significantly more for your policies, according to a new warning from the Consumer Federation of America.

Four years ago, experts at consulting firm Towers Watson urged property insurers to boost profitability by examining "the elasticity of demand" for their products. Translation: If you can raise prices without having customers jump ship, do it.

As insurers tip-toed into price optimization, they discovered what most of us already know: Inertia is a powerful thing. Most consumers accepted modest annual rate hikes without balking.

Now, roughly half of large insurers are price optimizing their policies by imposing incremental rate increases on existing customers year after year, said J. Robert Hunter, director of insurance at Consumer Federation of America. Those hikes have nothing to do with the risk or cost of your policy, so they're completely arbitrary, he adds. And an increasing number of small insurers are planning to jump on the bandwagon.

That means consumers who have remained with the same insurer for several years are likely to see their premium costs creep up on both auto and home insurance policies. But those who shop around and find a better price get better rates -- whether they deserve them or not. That's because consumers who announce plans to jump ship are likely to have their existing insurer offer to cut their premiums to the competitor's price -- or below -- to avoid losing the customer.

"We estimate that as many as 25% of consumers are getting PO'ed," said Hunter, who wrote a letter last summer to state insurance regulators to object to the practice.

Because the premium hikes encouraged by price optimization strategies have nothing to do with the risk or cost of the policy, Hunter argues the practice is discriminatory. However, it remains legal in most states. Thus, the only thing consumers can do to combat it is to comparison shop.

Do you have to shop every year? Not necessarily, said Hunter. Shop every other year, or whenever your premiums drift upward, despite having no new factors -- such as recent claims, new tickets or accidents -- to account for the higher price.

Most state insurance commissioners make shopping easier by providing cost comparisons for sample policies. You can find your state's insurance department through the National Association of Insurance Commissioner's website, and click through to find your state's shopping tool.

Hunter suggests you call the four lowest-cost providers in the survey and ask for quotes, making sure that you're getting quotes for a policy that's got the identical coverage to what you've got. (Pull out a copy of your existing policy, which shows coverage limits and optional coverages for everything from bodily injury liability to comprehensive, uninsured motorist and car rental coverage.)

Before you switch to the lowest-cost carrier, also look up the insurer's complaint history on your state's insurance site, Hunter says. A good complaint record is this industry's quality standard, he notes. Don't go with the lowest-priced company if it's going to be a nightmare when you have a claim.

Finally, if you find a better rate, call your existing insurer to tell it you'll be moving your coverage. If the insurer immediately offers a better price, said Hunter, you had been PO'ed.

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