There is no one who doesn’t gripe about insurance rates – whether it be for life, health, auto, homeowner…you name it. We all want the best for not very much. We also should shop around, if we have that option, to get the best price for the coverage we need, shopping only stable insurance companies, preferably. “You get what you pay for” not only relates to the amount of coverage when dealing with insurance but relates to quality of claims service – and that the company will still be in business when you might need it!
Beyond these obvious issues, what else affects the premium the specific policy we are buying? With health insurance these days, it is difficult to pigeonhole specifics. The changing (and maybe stagnating) face of health coverage today will be a muddled mess for at least a year and probably longer. Prior to Obamacare, you had to deal with age, sex, pre-existing conditions, health history and possibly profession. Whether you are obtaining coverage as an individual or through your employer, you are going into a pool. Obviously, with an employer, you are going into the employee pool of your employer company and, depending on the size, may be attached to a greater pool beyond that (small employers of 100’s vs large corporations of 1000’s). The pool is one of risk: like-kind as much as possible, etc. Of course, the younger and healthier the pool, the better it is for the older, not so healthy members of the group – perhaps reflected in overall lower premium costs to the employer and the employees. When you are an individual, you are likely placed a bit more purely in a like-kind pool. Pre-existing conditions are/were iffy, if covered at all, and could result in total coverage rejection.
Life Insurance? Very connected to actuarial tables relating to age, health, family history, profession. The more risky your profession, the greater the chance the insurance will be collected “prematurely”. For instance, the chances are greater that a life policy purchased by a 25 year old professional sky diver would be claimed against sooner than a policy bought by a 25 year old school teacher. Also, the older you are to start your policy, the more expensive. They are looking for longevity.
There are actuarial tables that cover all sorts of risks (age, sex, profession, health) that relate to life expectancy, accident probability and on and on. Insurance companies of all types use these as a means to protect their policy holders against insolvency by hopefully charging and collecting sufficient premium for all the risks they are insuring.
Some very general things that companies may look at – not cast in stone here! -are the following:
For auto, the type of vehicle is always a consideration. Fast and flashy has a higher rate than a “family sedan” type. Cost of the vehicle is obviously a factor. It may still be that a single male, under 25, is a greater risk than a married male of the same age group. Why? Because the married man, statistically, is more responsible. Sadly, many individuals don’t necessarily fit – on either side of that – but the average prevails. If you work in the restaurant business, especially a late night establishment, you might be in a higher risk category. Police officers tend to have a high rate for all the reasons.
It used to be (and may still be) that people who bought Harley-Davidson motorcycles got much better rates than those who bought the sleek, fast things. Reason? Harleys are expensive and typically their owners think of their bikes as an investment as well as being motorcyclists for the more “purist” reasons…not to burn up the asphalt. Translation: more responsible equals better risk.
If you are seeking homeowners insurance and your home is a certain distance from a fire department or water source for fire fighting, you will not get the same rate as someone in the middle of an urban neighborhood.
The point is, none of it is designed to be discriminatory but to assess – as best as possible – the cost of the risk the insurance company is taking to insure you or your property. That is what the actuarial tables do – provide the companies with an assessment of risk, enabling them to charge appropriate premium for the subject risk. Insurance companies – good ones – exercise fiscal responsibility for their own financial health as well as to comply with state insurance regulations – of which there are many.
Like it or not, it is what it is. No one is going to blindly say ‘yes’ to financial indemnification to anyone for anything without knowing the risk and charging the right price – except maybe your parents!
Finley Keller has spent nearly 30 years in the insurance industry, beginning as a licensed agent with a CLU then moving into claims. Auto, homeowner, worker’s comp and other liability-only type policy claims. Casualty and material damage.
Her last ten years were spent in SIU (Special Investigative Unit), working with fraud detection. The last four years she was manager of SIU, responsible for working fraud cases and the training of employees in compliance with state regulations as related to fraud. She is a retired member of NCFIA, Northern California Fraud Investigators Association. She has a Senior Claims Law Associate (SCLA) designation through the American Educational Institute, Inc.