Underwriting Standards
Underwriting standards are rules insurance companies use to decide whether to insure you and for how much. They are expected to apply these rules equally without illegal or unfair discrimination. Insurance companies typically use legal discrimination as they determine whether to insure you:
- Personal Characteristics
- Driving record
- Car make and model
- Car crash and maintenance history
- Prior insurance coverage
- Consumer credit history
- Insurance credit scoring
Let’s discuss these primary rating factors and others in detail.
Personal Characteristics
Age. The driver’s age affects the premium in a way that may seem unfair. The applicants’ age brackets least likely to afford auto insurance are usually the highest. Auto insurance companies charge more for young drivers who typically have low-paying, entry-level jobs. Why? Because of inexperience in driving situations. Senior drivers who are usually retired and live on a fixed income often see rate increases. Why? Slower reaction times, eye-sight problems, and other health conditions may contribute to accidents.
Gender. In Oregon, you can declare one of three genders on your driver’s license application: Male, female, or non-binary. Insurers can charge different rates for each gender class based on statistical accident data. Some challenge the pricing distinction as unfair and discriminatory. However, Oregon still sides with the companies, allowing them to continue charging different prices.
Marital Status. Another scrutinized driver classification is whether the applicant is married, single, divorced, or widowed. Is it fair to increase the auto insurance rates on the remaining spouse after the other dies, changing the status on one day from married to widowed the next? Where is the increase in risk to the company? Statistics show that a single, divorced, or widowed driver is more likely to cause an accident or file a claim than a married driver.
Driving Record
Everyone knows the company will eventually find out and raise your premium if you get a speeding ticket. Violations usually stay on your record for three years for pricing purposes. Some companies look backward for up to five years and apply an additional discount if you have been citation-free. Serious violations, such as reckless driving and accidents, may have a seven-year look-back period.
Premiums may not increase much for the first minor infraction but increase incrementally with each additional ticket. The company will observe a pattern developing if they see a driver attracting the attention of law enforcement and presume it’s just a matter of time before a claim will occur.
You must be honest with the agent when requesting a quote about what kind of tickets and how many you have going back as far as seven years. If you are not truthful, the quoted price will not be accurate. The companies have passed that cost on to the agent since the Oregon DMV has raised the amount they charge per driving record by nearly 1,000%. If you are not honest about your driving record, thinking it won’t show your infractions, then later you decide not to buy the policy once you authorize the agent to run the report, know that the agent will be charged the cost of those reports from their own pocket. Do that often, and no agent will ever want to quote you again. Also, understand that your tickets will show on your record whether you paid the fine or not. Many applicants believe a ticket won’t appear on the record once paid. The infraction will show, and it’s a good thing that you paid it. Otherwise, the DMV could suspend your license, and you could be driving while suspended, unaware.
Car Make and Model
What car you own does matter. Insurance companies keep a database of claims for each year, make, and model they insure, tracking which ones cost the most after an accident. How badly were the passengers injured? How many passengers did the vehicle carry at the time of the accident? How much damage was done to the insured car? How much damage was done to the other car or property? The insurer then compares the data to the national statistics for that model and adjusts the premium to match the loss experience across the country. Some vehicles are uninsurable, regardless of their safety record. Social media can spread a manufacturing defect at the speed of light, such as a faulty ignition system, and the next thing you know, every punk out there is stealing those cars. Since the electric vehicle is a fairly new technology, manufacturers have not yet resolved all the dangers of spontaneous battery fires, even when the vehicle is off and parked.
Car Crash and Maintenance History
Companies can now access accident and maintenance records for each vehicle identification number. They can apply these additional pricing factors that will affect your premium. Don’t count on the exact vehicle being the same to insure. Every car has its own history. Insureds are often stunned when the vehicle they recently purchased raises the policy premium by double or triple. They are even more shocked when we can send them a picture of the totaled vehicle from the auction before being reconstructed. Many sellers don’t disclose the car’s history and charge the unsuspecting buyer the price of an undamaged vehicle. Before buying a car, have the VIN ready and check with your agent or company how much it will cost to insure.
Prior Insurance Coverage
Auto insurance companies place a huge emphasis on a consumer’s personal responsibility. They reward policy owners with lower premiums and favorable financing options when they present proof of always maintaining a previous policy. Consumers can see prices soar as much as double just for letting their former policy lapse for more than 30 days. Even if you sell your last vehicle, you might want to keep the policy active until you can replace it. For the cost of a few days of coverage without a car, you might pay more in the long run. Your agent can instruct you on the best way, depending on how long you think it might be until you obtain another vehicle. Also, while shopping, let your agent know the vehicle identification number of each car you are considering to see how it will affect your insurance premium. If the agent isn’t willing to calculate the cost for each vehicle, you might be selecting the wrong agent.
Consumer Credit History
Insurance customers are still shocked to find out that companies use your credit history to determine the price of insurance. It is possibly the most important factor used to calculate the premium. The law allowing auto insurance companies to use credit has existed in Oregon since about 2005. Drivers often ask what they can do to lower insurance costs besides the ones mentioned above. The number one thing a consumer can do to reduce premiums is to improve their credit score. Pay off old debt. Be on time with credit-related payments. Don’t over-extend your credit. Don’t cosign on a loan for someone; you can’t control their payment behavior and might have to pay a debt that isn’t yours if they default.
Insurance Credit Scoring
This differs from your mortgage, credit card, or other debt-related credit history measurement. Although some companies will use your credit score to determine your insurance score, it plays only a part. Auto insurers also examine how often you change companies, make policy changes, or let your policy lapse. Suppose you constantly add and remove cars, move, play games with your coverage, or lower your limits. In that case, you can be guaranteed to see a rise in your next renewal payment. The less work the company has to do to cancel, reinstate, and make changes to a policy, the fewer resources are expended and the more you save. Companies love stable and responsible customers.
All insurance companies look at a prospective client’s credit history first to determine eligibility and price second. Insurance scoring has been controversial; many states, like California, have limited its use. In Oregon, insurers can use a policyholder’s credit information to raise premiums. Although the law prohibits insurers from canceling or refusing to renew existing policies because of credit history problems, they can price the policy so high that the insured is likely to leave. Companies have demonstrated that claim or loss activity can be tied statistically to a customer’s poor credit performance.
Rating Categories
If you are approved for coverage, the insurance company will place you in one of three basic categories of drivers: preferred, standard, or nonstandard. The lines are blurring between companies known to specialize in each, allowing a carrier to offer a single auto insurance product to a wide range of clientele.
Preferred. Considered the best risks, which usually means the safest cars with claim and citation-free drivers and excellent credit.
Standard. Moderate risk level. People in this category usually drive “family” cars and have reasonably clean driving records and average credit.
Nonstandard. This category is for drivers considered high risk, such as drivers under 25, with little driving experience, history of tickets or accidents, poor premium-payment records, lousy credit score, and serious convictions for driving recklessly or under the influence of alcohol or other drugs.
Types of Coverage
When you purchase an auto insurance policy, you’re buying several types of coverage. There are seven basic types:
Bodily Injury Liability coverage pays for injuries other people incur if you or someone you allow to drive your car causes an auto accident.
Property Damage Liability coverage pays for damage to other people’s property if you or someone you let drive your car causes an auto accident.
Personal Injury Protection (PIP) coverage pays for medical, rehabilitation, funeral, childcare expenses, loss of earnings, and in-home assistance, regardless of who is at fault in an accident.
Uninsured Motorist Bodily Injury coverage pays medical, rehabilitation, funeral expenses, loss of earnings, and other damages if you are involved in a vehicle, bicycle, or pedestrian accident caused by an uninsured motorist or a hit-and-run driver.
Uninsured Motorist Property Damage coverage pays for damage to your auto caused by an uninsured or hit-and-run driver. This optional coverage duplicates your collision coverage, but it may be a good buy if you don’t have Collision. It often has a lower deductible, which is returned to you if the company ever recovers the amount from the at-fault uninsured party. An uninsured motorist claim is automatically considered non-fault on accident reports, avoiding the need to constantly prove you were not at fault.
Collision coverage pays for repairing your vehicle in a collision or rollover, whether you or someone else is at-fault.
Comprehensive, also known as Other Than Collision, coverage pays for damage to your vehicle resulting from theft, vandalism, windstorms, fire, hail, etc. Essentially, anything that happens to your automobile, not caused by a collision while you are behind the wheel, gets paid for under Comprehensive.
All Oregon automobile insurance policies must meet specific minimum requirements but may vary in price depending on the limits, deductibles, and optional coverages. When shopping for auto insurance, compare prices only when you have selected the same limits and coverages. For example, we could offer you Bodily Injury and Property Damage Liability with 50/100/50 limits and matching Uninsured Motorist Bodily Injury and $500 deductible Comprehensive and Collision. The next agent might beat our price because they offer you 25/50/20 and $1,000 deductibles.
When obtaining a quote, provide correct and complete information on drivers, cars, address, and driving records. It will save you and us time and money.