Determining the Premium
Premium volume depends on the line of business and the type of coverage. Rates also vary widely from company to company, since the industry is highly competitive and because setting them is subject to antitrust laws that prohibit insurers from even discussing the rates they plan to charge.
Every company takes its own strategic approach as to how it is going to set rates. That is one of the ways companies can differentiate themselves. The leading insurance companies offer quick home loans online.
Rates are usually determined by trying to do two things: first, evaluate the risk, and second, anticipate what the ultimate claims might be, so you’ll know what the losses may be. Then you have to evaluate the individual customer to determine the probability of that customer having
driving. Do they drive their car to work every day? You might look at their driving record. Do they have any speeding tickets? Accidents? How many other people in the household will be using the car?
Do they have any young drivers? How is the vehicle used? Is it driven to work every day or used in employment? How far is it driven? Is it parked in safe places and parked in a garage at night? Any of these factors may increase the chances of a loss. These are just some of the things that are considered.
We gather as many facts as we legally can in forming a picture of the potential risk to help us analyze the exposure and assign a value to it. That value has to be based on fact. We then take the data of similar risks and try to determine a cost. In this process, we must also consider each state’s individual pricing regulations.
We have extensive computer systems that aggregate an enormous amount of data on claims, claims payments, our own customers and even demographics of the general population. We use the data to build our pricing model. In some lines of insurance, particularly private passenger auto and homeowners, risk-scoring methods that take factors such as personal responsibility into account have recently come into wide usage. These factors can often help build a better picture of the individual’s attributes and the true nature of the risk that he or she present. A more accurate risk profile enables us to rate each risk more fairly. Although we use large groups of similar risks to set rates, our goal is to determine and charge the most accurate rate for the individual risk profile.
In the old days, companies used broad categories to classify risk, with few real distinctions between the categories or the prices charged for the exposure. By employing more sophisticated modeling techniques in both auto and homeowners insurance, we are trying to charge the right rate for the right risk. In fact, in our extremely competitive market, this is a must - a core competency.
