Auto insurance premium calculation basics - questions

[vvenugopal]

Can someone point me to any document or tell me how the basic auto insurance premium is calculated part by part ? Someone who worked in the underwriting department can perhaps help. I understand the factors published by the department of insurance applies to the calculation of the various parts that add up to the total premium and I have also seen filing from carriers related to these factors. Looking for some calculation examples if possible.

 

[adjusterjack]

Can someone point me to any document or tell me how the basic auto insurance premium is calculated part by part ?

I can. But I want to know why you want to know this. Your "why" will narrow down the explanation to an understandable level.

Someone who worked in the underwriting department can perhaps help.

I worked in underwriting and rating where we had a book with paper pages that had rates for everything and we too pencil and paper and figured out the premium for each and every application. Now it's all done by computer.

I understand the factors published by the department of insurance applies to the calculation of the various parts that add up to the total premium and I have also seen filing from carriers related to these factors.

Then I can't imagine what more you want to know.

Looking for some calculation examples if possible.

Again, tell me why you want this and I can probably cook up an example. I would want to take the time if you just have an axe to grind about your insurance rates cause we all get upset about our insurance rates, even me.

 

[vvenugopal]

@adjusterjack Thanks for the reply. I want to write a program to do the same to calculate rates, unless I can find some open source code. As for the basics I understand we start with 'pure premium', then apply the factors and compute the pip/liability/comp/collision and other parts of the policy. I would like to see an example end to end how it is done. My searches on the web lead to some youtube videos but they seem quite limited. I am looking to find an example where it can show the each of the steps showing how the factors are used.

 

[adjusterjack]

I want to write a program to do the same to calculate rates

Why? (I'm not deflecting.) The ability to calculate premiums is available online from most insurance companies. I be surprised if any were still using paper rate manuals.

I would like to see an example end to end how it is done.

The math?

Way too many variables to give actual numbers. There are just too many adjustments to all those variables.

Zip code.
Driver sex and age.
Years driving.
Kind of car.
Driving record surcharges.
Young drivers.
Year, make, model of car.
Driver training discount.
Multi-car discount.
Home-Auto discount.
How long previously insured.
Standard, preferred, high risk.
At fault accidents.
Not at fault accidents.
Deductibles.
Miles per year driven.
Pleasure use, commute, business use.
Credit score (where allowed).

There are probably more that I haven't thought of.

You wrote that you have seen insurance company rate filings. You can use them to create an imaginary driver and compute an estimated premium.

 

[fed up]

Each carrier is different and I suspect the OP wants to prove that he is being overcharged so that he can get a rate revision or refund of premium. Some states allow credit, some do not. I know someone who regularly has to defend a carrier against frivolous claims by policy holders and still does manual rating based on the carrier's state approved rates. I have seen this person throw their hands in the air trying to figure some of the rating factors but in the end there is generally not any wiggle room for a policy holder.

 

[vvenugopal]

Computing from scratch - do I take a base premium like $100 and start applying factors to it and add for each part of the policy? still don't understand how the dollar figure is computed even just considering factors for variables like say year/make/model and age.

 

[adjusterjack]

Computing from scratch - do I take a base premium like $100 and start applying factors to it and add for each part of the policy?

Yes, you could do that.

still don't understand how the dollar figure is computed

The insurance industry doesn't want you to.

even just considering factors for variables like say year/make/model and age.

Collision and Other Than Collision (AKA Comprehensive) are rated based on the cost new of the vehicle, reduced each year based on the market value depreciation of the car. Then those rates are adjusted for a variety of factors.

You're avoiding my question.

Why do you want to do this?

 

[marindependent]

Why do you want to do this?

I bet you will not get this answer.

Even though you have patiently answered all of his questions.

 

[vvenugopal]

@adjusterjack Thank you indeed for your patient responses. I didn't realize the reason for the question is at all important. I thought I mentioned in my earlier note that I want to write a software program, I am a grad student doing a project to write a simulator to generate the various premiums and needed to understand how it is computed from scratch as an example. So I assume there is a base rate one starts with and the contribution from each variable according to the factors either published by DOI or the carrier. Still would like to see a work out Thanks again. May be this is too draconian a request ...?

 

[adjusterjack]

I didn't realize the reason for the question is at all important.

A poster's reason/motivation is always important. Knowing the reason helps me provide a comprehensive response and direct the person to appropriate resources.

I am a grad student doing a project to write a simulator to generate the various premiums

Is there time to pick another project? LOL.

needed to understand how it is computed from scratch as an example. So I assume there is a base rate one starts with and the contribution from each variable according to the factors either published by DOI or the carrier.

That's true. But without those rate filings I couldn't even begin to show you how premiums get computed.

Earlier I alluded to paper rate manuals. Back in my day, the rate manual was a loose leaf binder about 4 inches thick and every week we got new pages. There was a separate book that listed every car ever built anywhere in the world that could possibly be driven in the US. Each car was assigned a symbol based on its cost new. A rate was assigned to that symbol. The book also told us if the car was high performance or some other reason for a surcharge. The book was several hundred pages with thousands of makes, model, submodel and trim. Thousands of vehicles.

Today it's all coded by VIN. Maybe hundreds of thousands of items that would have to be written into your code just to be able to calculate a single policy premium for one car and one driver, let alone a family with several cars and several drivers.

May be this is too draconian a request ...?

It is.



Insurance companies spend millions on developing software that computes premiums and allows potential customers and agents to obtain quotes.