How Does My Carrier Determine My Rates?

You may not realize it, but your carrier creates an in-depth profile of you to determine its cost to insure you.  The two bullet-pointed lists below describe all the possible factors that carriers consider and, therefore, may cause rate increases:

Primary

• Territory – This is usually defined by where you reside.  Rural territories often have lower rates than urban, metropolitan territories because loss frequency and claims tend to be more common in cities, not suburbs.

• Use of vehicle – “Use” categories include: pleasure; driving to work or school; business; farming.  Typically, rates are lowest for farming and highest for business.

• Age – Younger drivers are more inexperienced and tend to be in more accidents than older drivers.

·        Gender –In the past, women tended to be in fewer accidents than men, especially amongyounger drivers, so rates are often lower for women.

·        Marital status– Young married men tend to be in fewer accidents than young unmarried men, sorates reflect this tendency.  In fact, onaverage, a married driver pays $149 less per year than a single driver does.

Secondary

• Driving record – If you’ve had any accidents or driving offenses, that may cause your rates to increase.
• Driver education – A discount may be provided for drivers who complete an approved driver education or training course.
• Good student – Students who maintain good grades may be offered premium discounts because, in theory, they tend to be in fewer accidents than poor students.
• Multi-vehicle policy – Most carriers offer a multi-vehicle discount based on the assumption that two or more vehicles owned by the same insured will not be driven as often as a single vehicle.
• Credit-based insurance score – These scores are based on an insured’s financial history, minus income data.  Research indicates that insureds with low insurance scores file more claims than insureds with high insurance     scores.
• The type of vehicle – Some vehicles are more expensive to insure and replace than others, and some vehicles are safer than others. The performance, age, and damageability of a vehicle may affect the rates for physical damage coverage on it, too.
• Limits and deductibles – First, rates are generally determined by the minimum liability limits required by your state, and rates increase if you choose higher limits. Second, insureds who choose higher deductibles are essentially credited with their rates, meaning they pay less in premiums because they retain a greater portion of covered losses.

Doyou see the trends?

Discriminatory?

Do some of those rating factors seem discriminatory?  Well, when it comes to insurance, carriers are allowed to fairly, not unfairly, discriminate against policyholders.  Unfair discrimination occurs when a carrier applies different standards to insureds who present with objectively similar loss potentials.  For example, charging an insured a higher rate based solely on their race, religion, or ethnic background is unfair discrimination.

Rating Classes

After considering all of the aforementioned factors, carriers will divide insureds into the following rating classes: preferred; standard; non-standard.  These reflect different levels of exposure to potential losses.  By offering lower rates to “preferred” insureds, carriers hope to attract and retain good, profitable customers.

We, at Woop, will not only inform you of what factors are causing your rates to increase, but we’ll also provide you with information on the best coverages available.  If you’re interested in this service, hit us up directly!

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