“Imagine the shock of hearing a quote $3,000.00 less than what you are paying for your insurance!” We just received a testimonial from this client who was floored at how much she had been overpaying for her home and auto insurance every year! How can that happen? And no, we did not lower her coverage, but did just the opposite by increasing her limits of liability as well as discounts and adding coverage endorsements that gave her more protection.
So, the question remains how can insurance companies be so different in what they charge for sometimes the same policy coverage, limits and deductibles?
As in all States, companies appointed in California to write insurance base their rates on many factors; and in this article, I will attempt to explain to you what they take into consideration so that it can help you with your insurance buying decisions.
Two of the carriers that we represent at Cardinal Insurance celebrated their 100-year anniversaries over the past 2 years. Not only does that mean they have stood the test of time writing insurance in our state, but more importantly to them, it means that they have 100 years of statistics to look back on to see what a profitable book of clients looks like for them.
These companies have statistics that are specific to the clients they have been writing. They track claims by age, zip code, severity, insurance score, frequency, and group affiliation to name a few. (Group affiliation is used by many companies to give discounts for members of groups such as Credit Unions, Professional Associations, Mature, and Alumni Associations). Having this history to look back on, these companies know which clients they can write profitably, and which will cost them to write and they set their rates, discounts and credits accordingly.
For home insurance, they know what age of home they have the most claims on, age of roofs that they pay out the most for interior damage to the home, age of insured who is most likely to turn in smaller claims vs paying them out of pocket. They know the loss experience of clients with and without woodstoves who suffer major fire claims, those who smoke vs non-smokers, those with dogs who they end up paying substantial dog bite claims on, even to the specific breed of dog that is the costliest when it comes to bites and lawsuits. Companies can show which homes with liability issues had lawsuits, meaning poorly installed decks, missing steps, swimming pools, trampolines, etc.
Once a company knows how many homes with trampolines they pay medical and liability claims on, they can figure out how much those claims cost and then price that risk accordingly.
For auto insurance, companies know at what age drivers tend to have more frequent and costlier claims. They know which vehicles are costlier to repair with parts and now, which ones have the more expensive computer components. Which vehicles do more damage in front end collisions that are minor, and which ones have speed issues where accidents tend to more likely involve higher rates of speed and are therefore more tragic and costly in terms of totaled vehicles and serious injuries or death.
Companies that have been in business know which risks and clients they can write more profitably and for those clients they are going to set their rates to be more attractive because they know based on statistics, the likelihood for claims. It’s a predictive model that helps companies know which clients they want to pull in with competitive rates.
As with all our articles, we hope that this has provided you some additional details to help in your insurance buying decisions. As always, we are here to assist if you would like assistance with your insurance or quotes with our carriers.