How Can Insurance Premiums on Two Different Homes Differ So Much?
Many people are surprised to find out what their neighbors are paying for homeowners insurance , especially when both homes are in the same town, the home’s size, features and re-build value appears to be the same, and especially if both are insured with the same insurance company. The answer lies in what is called “predictive modeling”, a mathematical approach to finding the perfect premium for every home: competitive enough to attract new customers, but high enough to pay claims and get a reasonable return for the risk.
The path to predictive modeling is paved with multi-variant rating. This also explains why insurance professionals need to ask so many questions. The questions may seem irrelevant, and many questions may be irrelevant to your unique personal situation, but insurance companies play the numbers, and with their extensive statistical databases assign adjustment factors in figuring out a final rate. To illustrate this, we’ve shown the effect some of the most common rating factors have on developing a final cost.
In the chart above, note how Average Joe has a dog. Sam just has a cat. Even though Joe's dog is a friendly pet and the neighborhood's favorite ambassador, he can't shake the fact that nearly one third of all homeowner's liability claims arise from dog bites. Thus, to account for that, the insurance company charges for little Fido.
It turns out Joe's credit score isn't quite as favorable as Sam's. The fact that Joe had a couple claims over the past few years is affecting his rates as well. Sam has also chosen to insure his cars with the same company as his home, getting a sweet account discount. Joe buys his auto insurance from a call center in Omaha.
At the end of this process, the little factor differences compound and really add up. In this example, Joe's homeowner's insurance cost is more than twice his friend Sam's.
This goes to the importance of having a conversation with us regularly. If you haven't spoken to your agent in a few years, and old Fido joined his predecessor Rover in the backyard last spring, having a conversation with us may uncover new discounts, as well as opportunities to address new issues that may have arisen. To find out how to save money on your homeowner's insurance, visit our homeowner's insurance page to understand how to position yourself best for the most economical insurance buy possible.