We’ve seen the following comment floating around on the internet in various forms, and it’s been around long enough that it’s probably time to address it and the underlying misconceptions surrounding it.
I make 60k per year and my healthcare is up to $400 per month. Compare this to my $25 a month car insurance or my $13 a month renters insurance.
So how is the price of insurance in Seattle determined? Why is there such a wide gulf, as the posters of similar comment point out, between the costs of Seattle Renters Insurance, auto insurance, and health insurance? There are a number of factors, but they can be broken down into two main categories.
Exposure As A Determinative Factor In The Price Of Insurance
If you’re trying to buy a policy, the price of insurance in Seattle is most strongly tied to the total exposure. What is exposure in insurance? The absolute most amount of money that the insurance company could be on the hook for on a given policy or set of policies.
If you have a basic renters insurance policy in Seattle, you might have $15,000 of personal property coverage, $100,000 of liability coverage, $4,500 of additional living expenses coverage, and $1,000 of medical payments to others. You also have defense costs against liability claims covered, at the insurance company’s expense and without being subject to those policy limits.
If you set your apartment on fire, the limit of the insurance company’s exposure for that policy is $120,500 plus whatever the cost of defending you against the liability claim might be. That total number is the absolute most that the company would pay under that policy.
On the other hand, if you have an auto policy with bodily injury liability of $100,000 per person, $300,000 per accident, and $100,000 of property damage along with full coverage (let’s say the actual cash value of your car is $20,500), the company’s maximum exposure on that policy would be $300,000 + $100,000 + $20,000 (ACV of your car, minus $500 deductible), or $420,000. That’s a rather larger amount of money, and so the base rate for that policy is going to be set higher.
What’s the maximum exposure on health insurance? To tell the truth, if you have a solid answer to that question, you’re going to make a great deal of money selling that information to insurance companies! Right now all they can do is use old claims and data about how often people get sick, because there is no actual maximum on the policy.
If you get a treatable form of cancer that’s caught early, they might pay out $750,000 that year to save your life. If your spouse has a heart attack in the same year, that might add another $500,000. That’s well over a million dollars of exposure on one policy, and doesn’t even factor in routine doctor visits and the like. The exposure on health insurance is basically unlimited – it can be predicted, but not perfectly because of the lack of an overall policy limit.
Insurance prices are set based on the amount of money that the insurance company expects to pay out, and a policy without a limit to that number is going to be more expensive for obvious reasons. It stands to reason that a renters insurance policy will be the least expensive of them all, because the exposure to the company is the lowest.
Loss Ratio As A Determinative Factor In The Price Of Insurance
Defined as the ratio of the money paid out in claims to the money earned in premiums by the insurance company, the loss ratio is a crucial element of how insurance prices are set. In other words, how frequently will money be paid out, and in what amounts, relative to what’s taken in? “How much” is impacted by exposure, as noted above, as well as by frequency of claims.
Frequency of loss can be predicted in a number of ways. There appears to be a correlation between credit standing and frequency of loss. There certainly is a correlation between previous losses and future ones. Location and previous type and frequency of claims in that area also factor into it.
All of these things go into the expected loss ratio, which is the loss ratio that the company’s actuaries predict for the future. While actuarial science is considered by many to be a dark art that defies understanding, it’s really just using statistics to predict type and amount of future losses and using that data to make sure that policies are sold at prices appropriate to the level of risk.
If the expected loss ratio is higher in a particular area, the price of insurance will be higher in that area – notwithstanding your personal risk factors. Even if you have impeccable credit and have never made a claim in your life, if you live on a block that has seen above-average theft of property for the last several years, you’re at higher risk and you’ll pay more for insurance.
Approval As A Determinative Factor In The Price Of Insurance
Of course, the price of insurance has to be approved by the state. That’s a process where the company tells the state what they want to charge and why. The state then more or less checks their math and makes sure that the rates are reasonable and sustainable before approving them.
This process, of course, varies widely by state – some states like Texas allow companies to use the rates and then seek approval afterwards, but that’s comparatively rare. Other states, like North Carolina, artificially hold rates down to unsustainable levels, which makes it difficult to get insurance there. The price of insurance in Seattle has largely been kept in “just right” territory in recent years, however.
There are, of course, a wide variety of other factors that go into setting the price of insurance. That’s why you need to work with an insurance expert for renters to make sure you get absolutely every discount to which you’re entitled. You can get a policy in just sixty seconds online, or call and speak with an expert to discuss your desired coverage. Just call (800)892-4308 or click to get covered - whether you need Seattle renters insurance quotes online or coverage anywhere else!
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