The Colorado Division of Insurance offers a lot of helpful advice, tips and points to be aware of when shopping for auto insurance. When comparing car liability insurance policies from Colorado’s top car insurers, make sure you are making an informed decision.
The Department of Insurance identifies two factors that govern what you’ll be paying for auto insurance: underwriting and rating. It’s states that these two factors analyze a consumer’s characteristics and determine the risk that consumer presents.
The following information is provided from the Colorado Department of Insurance.
Insurers depend on information provided on your policy application. When you apply for
insurance, you will be asked a series of questions, which assess the expected cost of insuring
you.
Insurers want to know your past driving record and certain personal characteristics to group you
with other similar drivers. Insurers review the claim history of your group to make projections
about future claims.
Some of these characteristics are beyond your control, such as age and gender. Other
characteristics can be controlled, but since they may relate directly to lifestyle or income, such
as geographic location and use of the vehicle, may be difficult to control. A third group of
characteristics is highly controllable, such as the make and model of the vehicle the consumer
wishes to own and insure. A vehicle with few safety devices and a powerful engine carries a
greater risk of high claims than a less sporty model. The consumer has a choice, or control, over
the decision to own a high-risk vehicle.
Insurers also consider lifestyle characteristics in the underwriting process. These characteristics
include marital status and employment history. From prior claims data, insurers know that
married persons tend to have lower claim levels than unmarried persons. Other statistics show
that persons who work in the same place for a long time tend to have lower claims. Also,
underwriting criteria can include credit history.
A rate for each group is set based on the historical claims statistics paid by the insurer for the
people in that group. The higher the losses from a group, the higher the rate for that group and,
therefore, it is an advantage for you to be in a low-risk group.
When you begin to contact companies, there are a few things you should know about how
insurance companies sell insurance.
Most insurance companies and many agents advertise. Check the newspaper and yellow
pages of the telephone directory for companies and agents in your area. In addition, you may
want to ask neighbors, relatives and friends for recommendations on insurance companies and
agents. Ask them about their experience regarding price and service. In particular, ask them
what kind of claim service they received from the companies they recommended.
Insurance agents are paid on a commission basis, which means the higher the premium, the
more money they make. The commission system of agent compensation is a strong incentive
for higher premiums. Certainly, competition between agents for business provides some
incentive to push rates lower than other agents, but not necessarily to the lowest price possible.
You should understand that not all insurance companies use insurance agents to sell their
product. Insurance companies generally use one of three methods to market their product:
direct marketing, independent agents or exclusive agents. The type of marketing method may
or may not be suitable for a particular individual, depending on the type of services offered.
Therefore, consumers should be aware of each of the three methods and may want to consider
them in their purchase decision.
Direct marketers sell insurance through the mail and by telephone. In some cases, consumers
can save money with direct marketers because these companies do not pay insurance agents
commissions to sell their policies. Companies may pass along these savings to the consumer.
However, some consumers prefer to pay an additional premium for the opportunity to have a
local agent available.
If you decide to call an agent for quotations, ask them how many companies they represent.
Independent agents represent several companies, and therefore you can get quotes from
more than one company from one agent. This is considered an advantage to many consumers.
If you contact an independent agent, be aware that the companies the agent represents are in
competition with one another for business. In an effort to encourage the agent to sell their
product, companies may compete by offering higher commissions and incentives to the agent.
Therefore, an insurance company that uses independent agents may have to charge extra in
order to pay the agent higher commissions. However, this is not always the case.
Some insurance companies sell coverage through agents that only represent their company.
These companies call their agents an exclusive agency force. Exclusive agents can only offer
you coverage from the company they represent; therefore, you can only get a quote from one
company for each exclusive agent you talk to.
Sometimes exclusive agents may work for a lower rate of commission than independent agents.
This is because companies do not have to give the agent an incentive to write their product over
another company’s product. The lower commission structure, especially on commissions for
renewal business, can represent significant cost savings to the insurance company. Often, a
portion of those savings is passed along to the consumer in the form of lower premiums.
When considering the purchase of an insurance product from an insurance agent, it is
reasonable to ask what rate of commission the agent is being paid for the sale of the policy.
This is not an unfair or personal question. After all, you are paying the commission with your
premium dollars.
If consumers want the lowest price possible, they must take responsibility for finding it
themselves. Remember that competition only works if the consumer shops for coverage.
