Underwriting and Rating Govern What You Will Pay For Auto Insurance

Two factors, underwriting and rating, govern what you will pay for auto insurance. These factors analyze your characteristics and determine the risk that you present.

Underwriting – Insurance companies underwrite in order to assess the risk associated with an applicant, group the applicant with other similar risks and decide whether the company will accept the application.

Rating – Rating is the determination of premium based on the driver, automobile characteristics, and selected amount/type of coverage.

Insurers depend on the information you provide on your policy application. When you apply for insurance, you will be asked a series of questions that assess the expected cost of insuring you. This cost may be revised if the insurer is unable to verify the information provided or if the insurer identifies new information.

Insurers want to know your past driving record and certain personal characteristics in order to group you with other similar drivers. A rate for each group is set based on the historical claims paid by the insurer for the people in that group. The higher the losses from a group, the higher the rate for that group. Insurers review the claim history of your group to make projections about future claims.

Some of the characteristics used to determine your group is beyond your control, such as age and gender. Other characteristics relating to lifestyle and income, such as your geographic location and use of the vehicle, also can affect your premium.

A group of characteristics that is easy for you to control, however, is the make and model of the vehicle you wish to own and insure. A vehicle with few safety devices and a powerful engine carries a greater risk of high claims than a less sporty but safer model. As a consumer, you have control over the decision to own a high-risk vehicle.

Insurers also consider lifestyle characteristics, such as marital status, in the underwriting process. From prior claims data, insurers’ statistics show that married persons tend to have lower claim levels than unmarried persons. Under Nevada law, domestic partners are treated as “married” for insurance rating purposes.

Finally, and perhaps most importantly, insurers often review loss reports. Information regarding your home and auto insurance claims history for the past seven years (with one or multiple insurance companies) is collected and compiled centrally by two separate entities, the Comprehensive Loss Underwriting Exchange, commonly known as “CLUE,” and the Automated Property Loss Underwriting Service, known as “A-PLUS.” The reports provided by these two entities contain consumer claim information provided by the insurance companies. The reports include policy information such as your name, date of birth and policy number; claim information such as date of loss, type of loss and amounts paid; and a description of the property covered. For homeowner coverage, the report includes the property address, and for auto coverage, specific vehicle information. In other words, when you shop for auto or home insurance, every company you approach has access to your entire loss history for the past seven years. You can obtain a free copy of either report once a year. To find out more about the CLUE report and how to obtain a free copy of the loss history maintained for you, go to personalreports.lexisnexis.com or call, toll free: 1-866-312-8076. For a free A-PLUS report, call 1-800-627-3487

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