1. "When I say this is a good policy, I mean it's good for me."

Recently, broker commissions have landed the commercial insurance industry in hot water with New York Attorney General Eliot Spitzer. But auto policyholders may be surprised to learn that some of the same issues afflict the car insurance industry. While agents can help you navigate auto policies, some may not have your best interest at heart: In 2005 the Consumer Federation of America found that 14 of the 20 largest auto and home insurers used "contingent commissions" to compensate agents who sold their policies.

Contingency fees come in two types: "steering" commissions for signing customers with a particular carrier, and profit-based commissions, when clients don't file a lot of costly claims. The concern with the former is that unscrupulous agents push certain policies to reap larger commissions; with the latter, they might delay or discourage claims. "It doesn't mean that this happens often," says CFA Insurance Director J. Robert Hunter. "Most agents are honest, but if the system provides an incentive, if there's money on the table, well, people do things."

How to protect yourself? Ask about commissions, and have prospective agents explain their recommendations.

2. "You can chalk up your high premiums to our lousy investments."
When premiums started to drop last year, auto insurers cited fewer drunk drivers and state crackdowns on insurance fraud. But the Foundation for Taxpayer & Consumer Rights offers a different explanation: Executive Director Doug Heller charges that hikes on auto and homeowner's premiums from 2000 to 2003 as well as similar crises in the mid-1970s and mid-'80s were precipitated by investment losses by the major insurance carriers.

The FTCR studied public investment filings of major insurers and found that between 1998 and 2001, nine out of 10 shifted their investments from government bonds into higher-risk stocks and corporate bonds. "Insurance companies jumped headlong into the stock market bubble only to fall hard when it burst," Heller told Congress in 2003. What followed were rate hikes and insurers threatening a pullout from several markets across the country.

The bad news, says Harvey Rosenfield, FTCR's founder, is that it could happen again. With the market bouncing back, carriers have been slashing rates and taking bigger risks to get more investment capital, he says potentially setting up policyholders for another hike if and when markets drop.

3. "Spotty credit? That'll cost you."
Sara Lapham and her husband Derek, an engineering technician in Dallas, went through a rough financial patch in 2002, when Derek's paychecks started to bounce. But the worst part was the letter from their car insurer saying they were being moved to the company's high-risk subsidiary with higher rates because of their credit history despite the fact that they'd had "no claims, no tickets, nothing," says Sara, a small-business owner.

This practice has been on the rise since the 1990s, when insurers discovered a strong correlation between low credit scores and filing lots of claims. Now more than 90% of insurers use credit history in their underwriting, according to the Insurance Information Institute. Although consumer advocates argue that it unfairly penalizes the poor, it can also bite the middle class, says Birny Birnbaum, executive director at the Center for Economic Justice. After all, "80% of families in bankruptcy are there because of a job loss, medical catastrophe or divorce," he says.

Since many insurers do factor in credit history, it's important to get your credit report from each of the three bureaus TransUnion, Experian and Equifax before you shop for insurance and check them for errors.

4. "How do we set premiums? That's for us to know and you to find out."
The good news is that, starting in 2004, auto-insurance rate increases began falling off in most states after rising steadily for four years. The bad news is that as insurers continue to adopt complex pricing systems, not everyone is seeing savings.Why the disparity? For starters, premiums vary widely by state.

According to the most recent data, in 2003 the average yearlong policy cost $939, ranging from a low of $680 in Iowa to a high of $1,365 in New Jersey. State insurance regulators are in part to blame for the huge price gulf. New Jersey, for example, has long been notorious for heavy restrictions on insurers. Before the Garden State revamped its rules in 2003, many companies claimed they couldn't make a profit and left, thus limiting competition and pushing rates higher.

But what's really muddied the waters are the formulas used to set premiums for individuals. Twenty years ago most insurers sorted customers into four or five pricing tiers, based on where they lived, their age and driving record. But in the past decade, hundreds of variables have been added to the mix, including credit history, homeownership and limits on past policies. Since each insurer interprets these variables differently, it's tough for consumers to get a handle on the system.

5. "Your repaired car might look and run like new, but it's worth a lot less."
As many policyholders know, when the other party's insurer is paying for repairs, you have the right to opt for original manufacturer parts instead of generic aftermarket ones. But even with the best parts and service in the world, "a fully repaired vehicle will often be worth less as a used car or trade-in than an identical car without the accident history," says J.D. Howard, executive director of the Insurance Consumer Advocate Network (iCan). What many people don't realize is that you're entitled to collect that difference, known as "diminished value."

But what if your insurer is paying the repair bill? You may be out of luck. While policyholders in Kansas and Georgia can collect diminished-value losses from their own carriers, in most states it's less clear-cut. Illinois's supreme court ruled in August that policyholders there had no right to collect diminished value from their own carrier.

Luckily, Howard says, it's not a total loss even if you can't collect diminished value, you can probably write it off on your tax return. (Consult your tax adviser.) That's why it's a good idea to hire a postrepair inspector, both to ensure that the work was done properly and to assess diminished value.

6. "Totaled your car? Good luck collecting its full value..."

When Mitch Stanley's 1998 Toyota 4Runner was totaled last year, he figured it was worth $12,000 to $15,000. But Farmers Insurance offered the Portland, Ore., nurse $10,100, based on comparable vehicles for sale ("comps," in insurance-speak). Policyholders may be surprised that insurance companies don't get their valuations from such standard sources as Kelley Blue Book or Edmunds.com. Instead, most use claims-servicing companies the biggest is CCC Information Services which consult proprietary databases to assess valuation. CCC canvasses dealerships in 250 local markets to build a database of comps that's updated daily, and "we talk to dealers to find out what they're willing to sell the car for," says Mary Jo Prigge, president of service operations. KBB and Edmunds, on the other hand, use transaction data, which is often higher.

But if your car is totaled, you needn't accept your insurer's first offer. Go to Edmunds.com or Autotrader.com to find better comps, and call the sellers listed on the insurer's report to verify their price. No dice? If it's a matter of $1,000 or more, hire your own appraiser and go through an appraisal-arbitration process.

7. "...and we're more likely than ever to declare your car totaled."
Given the haircut you're likely to take when replacing your totaled car, many policyholders would prefer to have repairs covered in all but the most severe accidents. But that's becoming increasingly difficult. According to the trade magazine Collision Repair Industry Insight, the percentage of damaged cars declared a total loss by insurers jumped from 7% in 1995 to 16% in 2003. The major driver behind this increase: the growing number of electronic components and passive restraints such as airbags on mass-market cars, all of which make for difficult and expensive repairs.

An insurer's rule of thumb is to total the car when repairs would exceed 70% of the vehicle's value, says J.D. Howard of iCan a threshold easily surpassed with a cracked fender and a few deployed airbags. If your car's frame is damaged, it can remain a safety hazard even when repaired. But if the damage is limited to a few minor, albeit expensive, components, you can appeal your insurer's decision to total it.

8. "Your mechanic works for us."
The auto insurance industry has long relied on direct-repair programs, which function like HMOs for ailing cars, with insurers maintaining lists of recommended repair facilities. In recent years some insurers have taken the relationship a step further; Allstate, for one, bought a nationwide chain of repair shops in 2001. Whether it's a network of preferred providers or outright ownership, such coziness between insurers and body shops makes consumer advocates nervous. "It lets the insurers take too much control over the repair process," says J.D. Howard. And when you have pressure to keep costs low, he adds, you may start to see "shortcuts" in repairs. But Allstate contends that it offers even more-comprehensive guarantees on the work done in its own body shops than on repairs from its referral network. Owning the body shops "helps enable the insurer to provide competitive rates by creating efficiencies in the claim process and removing incentives for fraud," says a company spokesperson.

More often than not, you have a choice whether or not to use the insurer-recommended shop. So should you? It's convenient, and in some cases, policyholders who take their cars there can get their deductible reduced or waived. If you do take the "in-network" route, hire a postrepair inspector to make sure repairs are done properly.

9. "Brand loyalty is for suckers..."
Since last year, when she began taking on additional responsibilities for her aging mother, Sara Kaul of Bethesda, Md., has been trying to lower her monthly expenses a big chunk of which consists of car insurance premiums. As a State Farm customer of 20-plus years, she'd watched her rates march steadily upward; as of last fall she was paying $437 for a six-month policy. By calling and checking online quote engines, Kaul was able to shave $82 or 18% off the annual premium with a similar policy from Allstate.

As more insurers adopt elaborately tiered pricing strategies, rates may differ dramatically from company to company and as your circumstances change, meaning it often doesn't pay to stay. You're better off comparison-shopping once a year rather than automatically renewing your policy. Start by getting online quotes from Geico and Progressive Direct, which sell their policies via company employees. (Progressive's site even generates comparison quotes from other major insurers, though you may get slightly different numbers if you check directly with the companies.) Be sure also to ask an independent agent for quotes, as well as companies like Allstate and State Farm, which use exclusive independent contractors. A February 2005 study by the Consumer Federation of America found that insurers with lower agent commissions often had cheaper rates.

Worried that lower prices mean poor service? The same CFA study found no correlation between policy price and complaints. You can check complaint statistics at www.naic.org.

10. "...but be careful switching carriers it could cost you."
No doubt you've seen the warnings in your policy that not paying your premiums can cause your policy to be canceled. It might lead you to think that when you want to switch carriers, dropping the old insurer is as simple as stopping payment. Not so. If you don't pay a bill for the next term, your carrier will not only cancel the policy but also may report your nonpayment to the credit bureaus. (Most insurers are required to give you a certain number of days' notice before cancellation.) Plus, your new carrier will see a cancellation in your history, which could mean you'll pay higher rates or be declined.

To avoid the issue, get the proper documentation. Ask your current carrier for a policy cancellation form, and make sure the timing is right that the ending date of your old policy coincides with the start date of your new one.