Agent’s Corner: Why are quotes from different insurance companies so different?

Editor’s Note: This is part of our ongoing series where you can get advice directly from one of our agents from on the call center floor. This week, we’re hearing about why the same person can get different rates from different insurance companies. 

One of the most frequently asked questions by our customers is, “Why is the price of auto insurance / home insurance for these companies so different for the exact same drivers and circumstances?” Representing a broad range of property insurers, Answer Financial is one of the largest insurance agencies in the country. In turn, each of our carriers are among the largest in the country, and have unique customer requirements and pricing formulas for their products, resulting in different rates. Let’s delve a bit deeper into what makes up these differences.

First of all, each carrier specializes in a specific type of driver, and a number of criteria are used to create a profile for that target market. Factors that are used include: the driver’s current insurance situation (whether or not there is an existing policy); the driving record related to moving violations; and accidents and other insurance claims, such as those for weather-related damage.

Secondly, each insurance carrier uses its own statistical correlation analysis to quantify the “risk implications” of other factors, such as geographic location, gender, creditworthiness and marital status. These and many other variables are aggregated from thousands of data points to determine the likelihood (risk) that a claim will be issued and how significant that claim may be. The higher the risk of paying out a claim and the higher the potential payout to a prospective policyholder, the higher the price of the insurance quote and subsequent premium.

There are variable cost factors in play, as well, in determining the price of an individual product. One has to do with a company’s costs in complying with state regulations that control premiums and mandate financial reserves to be set aside for claims purposes. Then there are “discount” factors, such as those dealing with home ownership, level of education and other demographic factors that predict the risk associated with a particular policy. Finally, wide variation in the return on an insurer’s invested funds, impacted by such things as stock-market volatility, may contribute to pricing decisions.

In general, the ability of a carrier to accurately predict the level of risk associated with individual policies is a critical component in establishing a price. Over time, from a carrier’s extensive experience evolves better, more narrowly defined driver profiles, which enable them to determine the optimum rate for each profile. The job of Answer Financial is to effectively match the experience, expertise and preferences of individual companies with the unique needs of every driver or homeowner who receives an insurance quote. We’re here to help!

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