Just like anything else, the more advanced technology gets, the more complex rating insurance has become with personal insurance rating (home, auto, motorcycle, umbrella, rentals, etc.). We can no longer collect three or four factors and tell you a rate, instead we must plug in a number of characteristics into the computer and get a rate.
Those that have 10+ years experience in the Insurance Industry quite frequently tell me… “back in the day it was much easier, we could just pull out a manual, plug in a few factors and get an accurate quote.” Those days are long gone. Now-a-days, it’s much more complex. Not only does it take more time, but it’s also hard to foresee future renewal pricing, or what reporting a claim will do to rates.
Actuaries are the folks that work for insurance companies and they analyze data on risk, and determine the key factors that would predict future losses and profitability of an account. Based on their findings they make recommendations to the insurance company advising how they should rate their policies. As a consumer, we should be aware of the factors that drive our insurance rates upward or down.
Like mentioned above, there are many, potentially hundreds of factors playing into the creation of a rate. Below are, in my opinion, the most important factors that play a part in the rating and underwriting of your insurance policies.
Ø “Insurance Score” : From what I’ve been told this is likely the most important indicator of future claims, therefore is heavily considered to influence rates. This is derived primarily from information reported on your personal credit history. It is not a true credit score, but it is heavily based on the characteristics that make up your credit score. The better your insurance score the more preferred pricing you will receive. As an agency we cannot view your credit history or information. However, there is a website which will allow you to order your annual credit report from each of the 3 major credit reporting agencies (TransUnion, Experian, and Equifax), one time per year for free. If you find errors on your report, it’s important to get these corrected.
o The website is: www. AnnualCreditReport.com
Ø Claim History: Each time you report a claim, regardless of whether there was a payout, mandatorily the insurance company must report this claim. It will be recorded on your claim history (similar to how a driving violation shows up on your Motor Vehicle Report). Zero dollar payouts are not going to affect you as much as a claim with a payout, but note that zero payout claims are still recorded.
Insurance companies will look heavily at the frequency and/or severity of claims when underwriting a homeowners or auto policy. The truth is, insurance policies are really meant for the catastrophic claims, and should be used in this manner. Turning in every small claim will likely raise your rates for future renewals or alert an underwriter to review the account and determine if they want to continue offering coverage in the future.
Ø Continuous Coverage without a Lapse: Similar to Claims history and motor vehicle reports, when you take out an insurance policy, continuity of coverage with an insurance company is recorded and is accessible to other insurance companies should you shop for insurance in the future. Actuaries have determined that continuous coverage without a lapse means a better risk; therefore better rates are afforded for these clients. Even better yet is continuous coverage with a single carrier for a number of years without a lapse. As an independent agency we have other markets, and you may find a better rate with another company. However tenure advantages with your current company should be weighed when contemplating changing insurance companies.
Ø Prompt Payment of Insurance Premiums: Making sure that you get your insurance premiums paid on time is very closely monitored. Underwriting has told us this is one of the largest indicators of whether an account will be profitable long-term. If you are on time making your payments the majority of the time, you will get preferred pricing and favorable underwriting consideration. If you ever think you cannot make a scheduled payment on time, please call the agency in advance and we’ll do our best to help you. Contact us in prior the due date, and we will work with the company to come up with a plan so that it’s not viewed as late.
We know that sometimes the above factors may be skewed against you, and that’s why we’re here… to help you however we can.