Does how insurance gets priced seem like a mystery? It should. The lack of transparency in insurance is shocking. Fortunately, pricing insurance is not as difficult as many would like you to think. In fact, ValChoice built calculators so consumers can understand how insurance pricing works.
Find out if you’re getting a fair price by clicking the buttons below.
Insurance pricing: A national issue or a personal curiosity?
Let’s start with personal curiosity. Insurance is expensive. Most consumers spend a significant percentage of their income on insurance. National averages break down as follows:
- Health insurance = 17%*
- Homeowners insurance = 2.24%
- Automobile insurance = 3%
*Health insurance estimate assumes unsubsidized, individual insurance purchased on an exchange. This figure goes down to approximately 6% for people who get their health insurance through employer group plans.
For the self-employed, insurance expenses — only for mandatory insurance — adds to approximately 22% of income. For those employed by someone else, the figure still adds up to 11%.
With figures like this, everyone should have the personal curiosity to understand how the rates are figured. Only then can consumers control their insurance price while still ensuring they are properly insured.
Find out if you’re getting a good value for the money you spend on insurance. Get a free ValChoice rating on your insurance companies by clicking the buttons below.
Insurance Pricing is a National Issue Too
As a national issue, there are ongoing politics around the pricing of insurance. Mostly these issues are political debates. Sides are chosen in these political debates based on the constituency politicians wish to please. The most talked about issues include:
- Gender – California, Hawaii, Massachusetts, Montana, North Carolina and Pennsylvania have eliminated gender in pricing insurance.
- Credit score – California, Hawaii, Massachusetts, Montana, North Carolina and Pennsylvania have disallowed credit scores in setting insurance prices.
- Age – California has eliminated age as a factor in setting insurance rates
- Jobs and education – To date, eliminating jobs and education as a factor in setting insurance prices is mostly a discussion item.
Video Tutorials on Insurance Pricing
Want to learn more about how insurance prices are set? Check out the ValChoice YouTube channel. We have a series of one to three minute videos covering insurance pricing. Each video is by subject, allowing you to choose the factors most important to you. Finally, you can take control of your insurance rates, and find the best insurance.
The pros and cons of legally dictating rate setting methodology
Who benefits and who is penalized by these legal mandates? Here’s a quick summary of how the above items play out in the real world.
Gender
Women are traditionally safer drivers. Eliminating gender as a pricing factor penalizes women, mandating they pay the same rate as riskier male drivers. In California, this change costs women $500,000,000 per year in increased car insurance premium.
Credit Score
People with lower credit scores tend to file more insurance claims. Eliminating this as a factor in pricing insurance benefits people with low credit scores. The cost falls on those with higher credit scores who traditionally file fewer insurance claims.
Age
The beneficiary of eliminating age as a rating factor is older people. The reason, rates cannot be increased based only on age, even though older drivers present a higher level of risk. Young drivers are also riskier drivers. However, young drivers do not benefit from the elimination of age as a rating factor because years of driving experience closely correlates with age and driving experience is allowed.
Technology always prevails
Eventually, technology will replace the political process of defining rate setting. As self-driving cars become prevalent, the affect of personal factors will become less meaningful in rate setting.
Technology is also now being used to rate insurance companies. Find the best car insurance and best home insurance companies in your state.
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