Keeping us guessing – Why insurance rates make no sense to anyone (and my solution)!

I recently rated an auto insurance policy for an insured at renewal this year. That’s what we do every year for our clients. I shy away from calling it shopping for their insurance. We review rates with all carriers, for all clients, every year.

Buying insurance is not rocket science, but it’s not like picking up a loaf of bread at the store either. It’s about being an informed consumer and having the right adviser to help you navigate the insurance world.

Help me Review my Rates!

Anyway, an accident came up for this client on the claims report. It was over 3 years ago and the company paid $365 for rental reimbursement. No other information was available and it happened before they became our clients.

So I categorized it as a Not-At-Fault (NAF), thinking that would be best. You would think, as many people do, that there would be no impact for an accident that was not their fault. Guess again, the premium increased by $250. Just for kicks, I set it as an At-Fault (AF) accident. The premium dropped back to the original quote. No kidding!

This makes no sense to me and it’s why I can’t tell people that accidents that were not their fault will not count against them…because apparently, they do.


The problem with insurance rates is that they have gotten so utterly complex. It’s hard to determine what will affect the rate, negatively or positively. The example above is one in which you would think a NAF accident, especially one that was more than (3) years old would not affect the rates. Well…it does.

Here are a few other examples:

Taking a car off does not reduce the premium proportionately.

In other words, if the premium is $700 for a vehicle on a policy with (3) cars, and that one vehicle is removed, the premium is NOT reduced by $700.

It’s why consumers are confused and angered by insurance companies.
It’s why insurance agents no longer have a valid explanation for rates.
Frankly, it’s a disservice to the consumer, and something needs to change.

That being said, part of the reason is that there is a wealth of data out there that influences company rates, and makes them seem fickle when they change their rates.

Our companies like Progressive, Safeco, and State Auto are testing the theory that real-time driving habits should influence rates. The advent of telematic devices like Progressive’s Snapshot and Safeco’s RightTrack and State Auto’s Safety 360 are leading the pack with cutting-edge technology.

Still, the final premium is stagnant and subject to the filed rates.

In the coming years, I see more of a path towards real-time and on-demand insurance. In other words, if the car is being driven, the insurance meter rate is running. This would work for liability and uninsured motorist.

When your car is sitting in the driveway and not being operated, the “meter” is not running and there is no charge.

Physical damage coverage would be static. In other words, a tree could fall on your car, or someone could collide with it and not have insurance. So, the physical damage coverage would be a set amount per month.

Otherwise, the charge per month would be like your water bill or your electric bill. It would be based on ‘your actual use” of the insurance.

Because, it’s not being used if it’s sitting in the driveway, right?