Over the 50 years that Urban Insurance has been selling Insurance in Chicago, the single most frequent question we are asked is “Why does the cost of insurance vary so much from one person to the next? The second most common question is “Which Company has the cheapest rates”? I will tie these two questions together because require a brief understanding of the factors that determine the cost any insurance company will charge to insure any given risk. This basic understanding applies to property insurance, life Insurance, and commercial trucking coverage; again, for simplicity we will use Car Insurance. With that in mind, you need to understand Car insurance Rates are based on 3 factors: The Over-all operating expenses of the insurance company, the potential cost of a claim and the likelihood of the company having to pay that claim.
Every insurance company needs employees to answer phones, respond to faxes and emails, provide quotes, write and send policies, process changes and process claims. These employees need desks, phones, and supplies in office space that must have electric and internet service, all of which cost money. However, these costs are based on labor, not risk; so each policy they write should have the same flat expense. So if a company produces 100 policies per day, any one policy should use about 1% of the total overhead.
When looking at the Over-all operating cost of the insurance company, clearly if the Insurance company is housed in a building with marble floors, silk drapes and executives with seven figure salaries, those cost are going to have to be passed on to the consumers. If a company spends millions of dollars sponsoring a racing boat, or Nascar team- policyholders are going to end up paying for those extravagances. This also holds true for companies spending millions on the “Naming-rights” to a stadium, or tens or in the case of Geico, over $1 Billion dollars spent on advertising. At Urban Insurance we search for strong companies that have a reputation for keeping their costs low and passing those saving on to their customers.
Maximum amount of claim
The potential cost of a claim, recognizes that, let’s say, a $250,000 Ferrari is going to cost more to replace or repair, than a $15,000 Chevy. Another example is If you have selected “Higher-Limits” of liability insurance, then in the event of a loss, the company will have greater exposure. Everything else being equal, Auto insurance Companies are going to need to charge more money on those risks that have a higher possible loss. A few major losses can result in an insurance company needed to explain to its share holders why they lost money that year.
Likelihood of Loss
But all risks are NOT equal. Drivers that have demonstrated a pattern of accidents, tickets, and who find themselves categorized as High-Risk will see their insurance quotes reflect this higher risk. This is particularly true of young or “Student Drivers.” Insurance companies have actuaries, people working full time who’s job it is to look at each claim looking for patterns. For example, If they see that a particular age group is 46% more likely to have a loss, they will recommend that the insurance rates for that group should reflect than additional exposure. If they find that a make and model of car is costing them more in claims than the company is collecting in premiums, then that carrier will look to increase premium for that type of auto. If they find they are loosing money covering a class of business, a given city, an age group, or any other factor, they will seek to adjust their rates to return that class to profitability. On the other side, if they find that a certain risk if has lower than average losses, and is there be profitable; an insurance company will lower their rate of that risk in an attempt to attract more of them.
Your friend’s insurance rate will be more or less expensive than yours based on the potential cost of a claim and the likelihood of the claim occurring. While company “X” might have had a high loss-ratio on a particular risk factor, company “Y” might have found that risk was profitable and feel no need to apply a surcharge. Which is why the real question is NOT “Which Company has the cheapest rates”, but which company offers the lowest rate for me?
It is for this reason that for over 50 years Urban Auto insurance has been working so had to find our customers the best company to fit their needs. We understand no one want to buy car insurance, but since it is a needed expense, we will work hard to locate the coverage you need and to do so at the lowest price.
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