Jag_V4Ape
Well-known member
Paying the same but I dont have any records.
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Am I getting hosed?!?!
- Thread starter jiggatwist
- Start date
Paying the same but I dont have any records.
Insurance is already priced in this way . . . this is what the risk classification achieves. When you are involved in an at-fault collision, then you become part of a group that poses a greater risk of filing a claim in the future (i.e. Group #2 in your example), and your significant rate increase comprised of both a re-classification AND inflation reflects this. For people in Group #1, they will only need to worry about the inflation adjustment.
Inflation affects everything we buy from food, gas, the price of vehicles, etc. and insurance is no different. If the expected cost of your future claim increases/decreases due to inflation or other reasons, then your premium must increase/decrease to match it. Even if you have never made a claim in the past, you are still at risk of filing a claim in the future.
Hopefully this helps clarify.
koorosh
Well-known member
I do hope it is the way you described Viffer i.e. "For people in Group #1, they will only need to worry about the inflation adjustment."
In the last couple of years, every time my insurance rate goes up despite my clean record, I am told by insurance agent that due to increased number of claims in the last year for the drivers driving the same vehicle as you, your rate goes up to compensate.
I was never told that my rate goes up solely because of inflation.
In the last couple of years, every time my insurance rate goes up despite my clean record, I am told by insurance agent that due to increased number of claims in the last year for the drivers driving the same vehicle as you, your rate goes up to compensate.
I was never told that my rate goes up solely because of inflation.
No, it's most likely not your specific vehicle (unless its 5-point safety rating deteriorates from one year to the next). When we set rates, we do it in two steps:
STEP 1: Overall Rate Adjustments
This accounts for inflation (i.e. the increasing cost of settling future claims). The estimate the average expected claim per vehicle and compare it against the average premium. For example, if the current average premium is $1000 and the average expected claim is $1050, then rates would be increased by 5%.
STEP 2: Classification Analysis
This step adjusts rating factors for the different levels of different rating variables so that the premium and individual pays matches their level of risk (so that rates are equitable). For example, "Use" is one such rating variable and it's levels and multiplicative factors could be:
Pleasure: 1.000
Drive to work 0-10kms: 1.100
Drive to work 11-20kms: 1.200
Drive to work 21+ kms: 1.250
Business: 1.400
After a classification analysis, the factors could be adjusted so that Work 0-10 sees an increase and Work 11-20 see a decrease as follows:
Pleasure: 1.000
Drive to work 0-10kms: 1.130
Drive to work 11-20kms: 1.175
Drive to work 21+ kms: 1.250
Business: 1.400
Impact
Overall, we can calculate the average rate change for a person in each Use level as follows:
Pleasure: (1.05)*(1.000/1.000) - 1 = +5.0%
Drive to work 0-10kms: (1.05)*(1.130/1.10) - 1 = +7.8%
Drive to work 11-20kms: (1.05)*(1.175/1.200) - 1 = +2.8%
Drive to work 21+ kms: (1.05)*(1.250/1.250) - 1 = +5.0%
In the real world, there are many more rating variables (such as Territory, Vehicle Type, Claims History, Convictions History, etc.)
Business: 1.400
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Well, I appreciate you are trying to help clarify it, but it's still doesn't change anything on what I have said. Oh, I have fixed your post, because it looked like, it's a given I will claim, which we both know is not true. I know, I know your risk calculations ...
So bottom line is, SF still treats me like someone who will surely claim anytime soon, thus they feel a need to hike a rate of someone who has never claimed, is old enough and rides mediocre and unimpressive vehicles. It still makes zero sense to an average Joe who can do a simple math.
I just spoke yesterday to a couple of guys with similar record to mine, even a bit older than me and we were talking rates and stuff. It's really crazy out there and very diverse, which tells me that whatever risk formulas you guys (generally people in insurance industry) are running are missing the target quite a bit in some scenarios. It has feel of a spray gun and hoping some of the bullets will hit the target ....
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Thanks for the insight .... Can you shed some light on the differences drive to work vs. kilometres driven? What's the logic behind the 7.8, 2.8, 5.0 progression? If there's any. Also, could you pls let us know how big impact on the rate (percentage wise) has a territory data element?
Yes, that is a good correction -- I certainly meant your expected future claim.
If they treated you as someone *surely* to make a claim, then you would be paying about $50,000 a year. As your expected future claim increases, your premium increases. Your premium can increase due to reasons both within your control (driving record, convictions, etc.) and not within your control (inflation).
In the aggregate, rates are very precise. A company's goal is to match risk to premium as closely as possible. This is in the company's best interest, otherwise they will be adversely selected which severely reduces profitability and can even lead to insolvency.
Read pages 151 to 154 of this document which explains it better than I ever could:
http://www.casact.org/pubs/Werner_Modlin_Ratemaking.pdf
No problem.
Most insurers have rating variables for both "exposure" and "use" for autos (but this is not common for bikes with more simplistic algorithms).
Exposure: Distance driven each year (eg. 0 - 15,000km, 15,001 - 25,000km, etc.)
Use: How the vehicle is used (eg. Pleasure, Drive to work 1-10km, Drive to work 11-20km, . . . , Business, etc.)
The rate differentials that I showed were pulled out of my head . . . they aren't real numbers used in a rating algorithm, although they may be similar. If you want to understand the basics of the process used to determine the rating factors, read chapters 9 and 10 in this text:
http://www.casact.org/pubs/Werner_Modlin_Ratemaking.pdf
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