There are many variables in the rating systems of companies to determine the proper rate to charge a consumer. Their credit score has a lot to do with it along with moving violations, accidents and even the area they live in. Some carriers have it down to a science on loss frequency in an area and the zip code of garaging comes into play. Sometimes the type of vehicle being insured has an impact on premium with damageability in an accident. It is indeed a complex system in place. Everytime we do a quote, I am amazed at the discrepancy in premium between 5 carriers on the same risk. Some carriers give more credit if we do the HO with it so that is really the way to go if an agent can quote both.
You also have to remember that all insurers do not possess the same degree of sophistication or capability when it comes to pricing. The larger, more sophisticated insurers will have more segmentation in place to help better price a given risk; smaller insurers will not have that capability. That leads to the potential for very large differences in quotes and increases the probability of adverse selection occurring to smaller carriers who can’t “defend” against it with similar segmentation.
Roger hit the nail on the head. The CFA needs to be pressuring the lawyers that are being awarded outrageous settlements that don’t truly reflect a person’s injuries. Our agency sees $500 PD claims with $15,000 BI payouts. How does that add up? The carriers are paying out policy limits day in and day out and people wonder why rates are what they are in these cities.
Auto insurance rates, or any insurance rates for that matter, do not have to be “fair” or “affordable.” They must, however, meet actuarial requirements to cover both expenses and profit. Insurance is not a utility. Insurance rates should not be calculated on the basis of regulators or politicians keeping their jobs.
Instead of spending their time and money attacking insurers for charging (state-approved) rates, why don’t they spend their resources educating consumers to seek the best deal they can find?
My bigger concern here is that the CFA tried to come up with a ‘normal’ or ‘typical’ scenario for comparative purposes and they used state minimum limits!
We have carriers who will quote a lower rate for limits higher than state minimums. Carriers don’t like to have customers who are bottom lining the limits strictly for price. They are generally not loyal and go elsewhere for a dollar savings. We don’t like minimum limits either since we would have more E&O exposure in case of a serious at fault claim. The customer/attorney will say we didn’t recommend higher limits. We have to document our files that they were offered and get a sign off by the customer when they buy.
Barry is right. It is the overall aggregate rate compared to losses and expenses that dictate the reasonablenss of the rate. Good drivers in big cities with higher payouts and more losses will pay more than the same good driver in a lower risk and loss environment, so this is an exercise in futility. Perhaps the CFA is troubled by the concept of spreading the risk and doesn’t want to accept that good drivers everyhwere pay the losses of the bad drivers. If they need an even stronger example they should look at health care premiums and the small percentage the insured population that consumes the overhwelming majority of services.
You know what? In this country, a consumer can always go somewhere else if they think the rate they are being charged is too much. With the advent of the internet, one can go onto it and get all kinds of quotes. Of course, many don’t know what they are buying and end up with a bottom line quote with inadequate coverage. The GEICO’s, Progressives, 21st Century people on the phone aren’t even agents, they are order takers and give little advice on what to have or even recommend proper coverage. Independent Agents do the best job of explaining coverage to a consumer. Geek buyers are not loyal and will shop on the net and change in a heart beat if they think it will save them money. Flo is on the tube telling consumers to pick the price they want to pay. What a joke.
Everything in your post makes sense and most of us that read this publication understand why rates vary. But we all have clients, friends, and relatives that ask the same question about why rates can vary so much. It’s really unexplicable from a customer perspective. And now that auto insurance is just a commodity to most people there’s no patience on their part to listen to an explanation. Let’s face it, 21st Century’s TV advertising admits there is no difference between repairs or service. They just promote “the same repair but with a lower rate”.
We have one carrier that began using a new credit model on renewals. Rates have doubled in some cases. I’m a proponent of the use of credit as an underwriting variable but even this one is hard to swallow.
The problem with using the Credit Score as a major tool in determining the price is that we have a poor economy currently and many people’s credit scores have deteriorated as they have lost wealth in the past 3 1/2 years. Companies will put someone in a higher rate tier based on their score, so the poor customer gets a double whammy at a time when they are struggling to make ends meet. I think that is patently unfair and if the customer is not having claims and pays their premium, they should not be uprated.
Agent you are exactly right. I read this article from another source earlier which contained 2 rebuttal paragraphs from a NAMIC spokesperson which said exactly the same thing. I’m not sure why IJ chose not to include that.
Oh by the way, 5 quotes – now that’s statistically credible isn’t it! They probably did more than than but it probably adversely skewed their conclusions, so they eliminated it.
Guy, We are living in a very complicated world now and technology is very hard to stay up with. About the time you think you have a handle on it, it will change. Our salvation is that we use a comparative rater to give us an indication of which carrier is likely to give the best quote and then we have to finish it off in the company system. Our CSR’s are competent, but they are challenged to make sure the quotes stand up and are issued. With the companies taking rate right and left, it is a wonder we can do anything and make it come out.
At a time when price shopping has never been easier or more promoted, the consumer advocates should let the free market play out. Regarding the variance among company rates, it’s a reflection of the variance in company loss results, expenses, underwriting and financial return requirements tied to the legal entity structure. Let the market weed out the expensive and inefficient.
Nevada is an example of auto rates to high. What they need in Nevada is an elected insurance commissioner who will represent the consumer. That is the only way to lower the rates. At present the commissioner is in BED with the auto insurance companys.
I am not sure a Commissioner in bed with the industry is not just as bad as one in bed with consumer groups like Robert Hunter was when he was Commissioner in Texas. He wore his welcome out in Texas in a few years so he could continue to be a consumer advocate elsewhere. Consumer advocates don’t seem to understand that companies have to pay claims, defend insureds and then somehow pay their overhead to stay in business. They have to charge a rate that they feel will allow them to succeed. Sometimes they run off good business, but it is their choice.
I still, to this day, do not understand why insurance companies have to pull a credit report to get us an insurance quote and get a policy. It does not make any sense to me. They are not insuring anybody’s credit, they are simply insuring a car, home, etc. Since we have to pay in advance, whenever someone does not pay, all they have to do is cancel the policy immediately and the company will loose nothing. I imagine that after all jobs loses that all citizens in this country have had during the last 10 years, eveybody’s insurance policies have increased because their credit scores have suffered. This is not fair, but like many things in this country, we can protest and they will not change anything because the companies will pay the lobbyists to keep things as they are right now!!! These actions from these insurnace companies do not benefit any consumer at all, to the contrary!!!
Henry, The companies I represent all say that they have the statistics that prove that higher credit score customers have fewer accidents and drive newer cars so that makes them a better risk. They don’t show me these statistics, but are repeating the company line. Credit score models have been around for a while and have popped up on Commercial customers as well and D&B is checked. If the prospect is a little late paying their bills, they become less acceptable. We used to underwrite things on MVR results and claims paid, but now there are 30 other factors built into the system. Some companies really have it down to a science and price by zip code even. It is hard for us old heads to stay up with.
They are charged alot because even if they tap someone at 5mph there will be suffering, pain, lawyers……
There are many variables in the rating systems of companies to determine the proper rate to charge a consumer. Their credit score has a lot to do with it along with moving violations, accidents and even the area they live in. Some carriers have it down to a science on loss frequency in an area and the zip code of garaging comes into play. Sometimes the type of vehicle being insured has an impact on premium with damageability in an accident. It is indeed a complex system in place. Everytime we do a quote, I am amazed at the discrepancy in premium between 5 carriers on the same risk. Some carriers give more credit if we do the HO with it so that is really the way to go if an agent can quote both.
You also have to remember that all insurers do not possess the same degree of sophistication or capability when it comes to pricing. The larger, more sophisticated insurers will have more segmentation in place to help better price a given risk; smaller insurers will not have that capability. That leads to the potential for very large differences in quotes and increases the probability of adverse selection occurring to smaller carriers who can’t “defend” against it with similar segmentation.
Roger hit the nail on the head. The CFA needs to be pressuring the lawyers that are being awarded outrageous settlements that don’t truly reflect a person’s injuries. Our agency sees $500 PD claims with $15,000 BI payouts. How does that add up? The carriers are paying out policy limits day in and day out and people wonder why rates are what they are in these cities.
Auto insurance rates, or any insurance rates for that matter, do not have to be “fair” or “affordable.” They must, however, meet actuarial requirements to cover both expenses and profit. Insurance is not a utility. Insurance rates should not be calculated on the basis of regulators or politicians keeping their jobs.
Instead of spending their time and money attacking insurers for charging (state-approved) rates, why don’t they spend their resources educating consumers to seek the best deal they can find?
My bigger concern here is that the CFA tried to come up with a ‘normal’ or ‘typical’ scenario for comparative purposes and they used state minimum limits!
We have carriers who will quote a lower rate for limits higher than state minimums. Carriers don’t like to have customers who are bottom lining the limits strictly for price. They are generally not loyal and go elsewhere for a dollar savings. We don’t like minimum limits either since we would have more E&O exposure in case of a serious at fault claim. The customer/attorney will say we didn’t recommend higher limits. We have to document our files that they were offered and get a sign off by the customer when they buy.
Barry is right. It is the overall aggregate rate compared to losses and expenses that dictate the reasonablenss of the rate. Good drivers in big cities with higher payouts and more losses will pay more than the same good driver in a lower risk and loss environment, so this is an exercise in futility. Perhaps the CFA is troubled by the concept of spreading the risk and doesn’t want to accept that good drivers everyhwere pay the losses of the bad drivers. If they need an even stronger example they should look at health care premiums and the small percentage the insured population that consumes the overhwelming majority of services.
You know what? In this country, a consumer can always go somewhere else if they think the rate they are being charged is too much. With the advent of the internet, one can go onto it and get all kinds of quotes. Of course, many don’t know what they are buying and end up with a bottom line quote with inadequate coverage. The GEICO’s, Progressives, 21st Century people on the phone aren’t even agents, they are order takers and give little advice on what to have or even recommend proper coverage. Independent Agents do the best job of explaining coverage to a consumer. Geek buyers are not loyal and will shop on the net and change in a heart beat if they think it will save them money. Flo is on the tube telling consumers to pick the price they want to pay. What a joke.
Everything in your post makes sense and most of us that read this publication understand why rates vary. But we all have clients, friends, and relatives that ask the same question about why rates can vary so much. It’s really unexplicable from a customer perspective. And now that auto insurance is just a commodity to most people there’s no patience on their part to listen to an explanation. Let’s face it, 21st Century’s TV advertising admits there is no difference between repairs or service. They just promote “the same repair but with a lower rate”.
We have one carrier that began using a new credit model on renewals. Rates have doubled in some cases. I’m a proponent of the use of credit as an underwriting variable but even this one is hard to swallow.
The problem with using the Credit Score as a major tool in determining the price is that we have a poor economy currently and many people’s credit scores have deteriorated as they have lost wealth in the past 3 1/2 years. Companies will put someone in a higher rate tier based on their score, so the poor customer gets a double whammy at a time when they are struggling to make ends meet. I think that is patently unfair and if the customer is not having claims and pays their premium, they should not be uprated.
Agent you are exactly right. I read this article from another source earlier which contained 2 rebuttal paragraphs from a NAMIC spokesperson which said exactly the same thing. I’m not sure why IJ chose not to include that.
Oh by the way, 5 quotes – now that’s statistically credible isn’t it! They probably did more than than but it probably adversely skewed their conclusions, so they eliminated it.
Guy, We are living in a very complicated world now and technology is very hard to stay up with. About the time you think you have a handle on it, it will change. Our salvation is that we use a comparative rater to give us an indication of which carrier is likely to give the best quote and then we have to finish it off in the company system. Our CSR’s are competent, but they are challenged to make sure the quotes stand up and are issued. With the companies taking rate right and left, it is a wonder we can do anything and make it come out.
At a time when price shopping has never been easier or more promoted, the consumer advocates should let the free market play out. Regarding the variance among company rates, it’s a reflection of the variance in company loss results, expenses, underwriting and financial return requirements tied to the legal entity structure. Let the market weed out the expensive and inefficient.
Nevada is an example of auto rates to high. What they need in Nevada is an elected insurance commissioner who will represent the consumer. That is the only way to lower the rates. At present the commissioner is in BED with the auto insurance companys.
I am not sure a Commissioner in bed with the industry is not just as bad as one in bed with consumer groups like Robert Hunter was when he was Commissioner in Texas. He wore his welcome out in Texas in a few years so he could continue to be a consumer advocate elsewhere. Consumer advocates don’t seem to understand that companies have to pay claims, defend insureds and then somehow pay their overhead to stay in business. They have to charge a rate that they feel will allow them to succeed. Sometimes they run off good business, but it is their choice.
What does “rates are too high” mean?
So.. an online application for an imaginary customer was able to get a “good credit rating”?
Sence when did we start assigning “good credit” to fictitious customers?
These rates are inflated and do not reflect the benefits of having good credit.
I still, to this day, do not understand why insurance companies have to pull a credit report to get us an insurance quote and get a policy. It does not make any sense to me. They are not insuring anybody’s credit, they are simply insuring a car, home, etc. Since we have to pay in advance, whenever someone does not pay, all they have to do is cancel the policy immediately and the company will loose nothing. I imagine that after all jobs loses that all citizens in this country have had during the last 10 years, eveybody’s insurance policies have increased because their credit scores have suffered. This is not fair, but like many things in this country, we can protest and they will not change anything because the companies will pay the lobbyists to keep things as they are right now!!! These actions from these insurnace companies do not benefit any consumer at all, to the contrary!!!
Henry, The companies I represent all say that they have the statistics that prove that higher credit score customers have fewer accidents and drive newer cars so that makes them a better risk. They don’t show me these statistics, but are repeating the company line. Credit score models have been around for a while and have popped up on Commercial customers as well and D&B is checked. If the prospect is a little late paying their bills, they become less acceptable. We used to underwrite things on MVR results and claims paid, but now there are 30 other factors built into the system. Some companies really have it down to a science and price by zip code even. It is hard for us old heads to stay up with.