CHAPTER 8 Factors That Affect Your Premium Why do premiums vary from company to company? Why do they vary by person? There are a lot of reasons, described below.
Company-to-Company Variations
In general, insurance companies need to stay competitive so that customers buy their policies, but the bottom line is that all companies have to ensure they cover everyone’s costs. They also have to factor in their own expenses, like employee raises and healthcare. Sometimes they have to raise premiums across the board because overall costs rise. One reason that premiums differ between companies is that each company has a different way of factoring risk based on their history and their calculations. For example, company A notices that males over 78 years old are in more accidents than other age groups. Company B notices the same thing but recognizes that this is only some of the men over 78 and has a formula for figuring out which of those men are more likely to fall into this category.
Person-to-Person Variations
This is where most of the factors, well, factor in. In general, people who file more expensive claims will get higher premiums. On the flip side, people who file less expensive claims — or fewer claims overall — will be given lower premiums. When an underwriter is figuring out your premium, he or she will look at a variety of factors to determine what’s called your 32
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