Why Insurance (Generally) Costs What it Does

All insurance risks (home, car, motorcycle, business, etc. listed on an insurance policy) are different. As a result, insurance is not always going to be ‘cheap’ or have an average rate. There are innumerable characteristics that make rates fluctuate, so what people think insurance ‘should’ cost versus what professional underwriters and agents present to consumers often conflicts. Sometimes, people are confused because they primarily search the internet or take commercials on TV as gospel truth. Another common problem for insurance agents comes when consumers base insurance premium goals off other people they know without accounting for inevitable differences between their risks. The best thing a consumer can do is talk to an insurance agent. An agent can get all pertinent information needed to generate a quote unique to the consumer’s needs. With Zimmer Insurance Group, customers have a dedicated agent, and this really pays off because agents are the best resource for navigating the often-confusing world of insurance before, during, and after the sale! 

When going through the initial quoting and subsequent underwriting processes, people might be confused why some companies end up being more expensive than others they might also be considering. One of the chief reasons behind cost difference is the amount of risk tolerance each company has – essentially, how ‘picky’ the companies are. Some have certain criteria that others might not, and some are stricter about certain things like speeding tickets or number of accidents that they will accept. Zimmer Insurance Agency admittedly works with carriers that are skewed toward the pickier side, but that is because the emphasis for Zimmer is on QUALITY, not QUANTITY. Remember, no two risks are the same and no final decisions can be made without an official underwriting process. Until the underwriting process is complete (insurance jargon for the risk being assessed by a professional working for an insurance carrier whose job is looking at all the data concerning a customer/ prospect) there cannot be a clear picture of cost. The insurance carrier needs to know what and who they’re considering offering coverage, that way they can determine if it’s a good fit.

Companies that decline to provide coverage to ‘unfavorable’ risks (i.e., a lot of claims or driving violations) do so because their underwriters’ analysis likely suggest further losses will be incurred. If a client pays $950 a year for car insurance but has had $20,000+ in claims within two years, that’s a bad risk. No company wants to lose money regardless of the industry in which it’s involved. While there are companies that might still accept those clients, often they will charge them heavily to offset the possibility for future losses compared to premiums for clients with clean driving records and multiple years of no accidents. Those things are what an underwriter would deem makes someone a ‘good risk’. 

With larger insurance companies (out of professionalism, there are no names used) filling up the world with witty commercials and taglines, there often is a greater ‘risk appetite’, meaning they are a lot less picky about who and what they cover. They can afford to be that way – at a huge insurance company, there’s a much larger pool of customers. Often, these clients are risks that aren’t up to par for the ‘top-tier’ companies yet they still don’t want to pay a lot for insurance. The sheer number of other polices helps keep premiums relatively low overall in the big-box, low-cost insurance company world. The law of large numbers means these big companies still feel it economically viable to accept customers others might not want (i.e., 18-year-old who has already totaled a car and had a speeding ticket, or another client that has a DUI conviction – most companies would steer well away from these either by canceling any current policies, massively increasing premium, or declining a new applicant with the above characteristics). 

Many variables go into an insurance underwriter’s decisions and the subsequent premium if a policy can be offered, especially when it comes to people’s car insurance. Such influencing criteria for an auto policy might include, but is NOT limited to:

• Age of the driver. Older drivers have more experience than a newly licensed teenager, and thus in theory will approach driving with more maturity and rationality.
• Age and mileage of the vehicle. As cars get older, chances are they’ll be worth less considering miles and prevailing market value increases (i.e., a 250,000 mile, 2007 Toyota is more likely to be a total loss after an accident because it is worth less on the market than an $80,000, brand new 2022 BMW with only a dented fender and bumper). If a car is super old with high mileage, it’s going to be more expensive to fix than it’s worth, so an insurance company will total it out for what it’s worth rather than waste money paying over market value. If they total it and pay the price at what it’s currently valued, that fulfills their contract because they paid the equivalent.
• Cost and type of vehicle (i.e., a brand new $300,000 Ferrari sports car is going to be considerably more expensive to insure than the same amount of coverage on a 10 year old Buick). Expensive cars are a big risk to the company because they stand to lose a lot more if something happens. Parts, labor, etc., all must be taken into account. An exotic Italian sports car is going to cost a lot more to fix than an average sedan!
• Driver’s accident history or moving violations (i.e., speeding or texting while driving). These patterns show the client has incurred a lot of expenses for their insurance company and might suggest unsafe driving practices.
• Intended use of the vehicle – whether commercial or personal. Commercial auto policies (dump trucks, tow trucks, pickups working for landscapers, etc.) are always going to cost more because the exposure is greater, the vehicle is used to make money and when customers get involved it can get very complicated liability-wise.
• Coverage limits desired/required (as in cases of leased vehicles requiring full coverage), etc. Full coverage is most expensive because the company needs to not only provide liability coverage (standard requirement), but also has to pay for physical damages caused to the insured’s vehicle. A bare-bones liability policy will be cheaper because you are covering only the legal liability – if you hit a pole and only have liability coverage, the damage to your vehicle will NOT be covered. Liability-only policies are only advisable in instances of super old, high-mileage vehicles that would be cost-prohibitive to insure on a full-coverage policy. More often than not, damages wouldn’t be paid for as the car would be totaled.

Incredibly, even after looking at all these variables, you must simply remember to consider the size of the company providing coverage (not to be mistaken with the agency representing the carrier). Smaller companies generally focus on quality of coverage and claims response because they’re not motivated by price, but rather they’re motivated by service. Large companies are not innately bad, but some clients might feel lost and as if they are a number. At Zimmer Insurance, you are not a number and nor will you ever be. That is how multiple generations of customers have come to trust them, and you should too! Zimmer’s agents will always do their best to find the best fit for the client and will help through each step of the process. Call us with any questions or to speak to an agent, 513-381-1919!