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People often wonder why they pay the amount they do for their insurance policies. There are a number of factors that companies use to determine rates and how this directs what the policyholder will pay.

One item that insurance companies examine is rating variables. Underwriting and pricing depend on a company’s ability to collect and use accurate information about the person or business
who needs coverage. Some of this information comes from underwriting or rating variables, known as factors. Every company uses unique factors and assesses them differently, but there is general agreement that factors should be objective, sound, and have a reliable, statistically significant connection to expected losses and expenses. The more information an insurer has, the more accurately it will be able to assess the likelihood of a loss.

State laws help to determine what an insurance company can charge a potential customer.  Factors that are considered include things such as location of home or business, claim history, age and type of home or vehicle, and other factors that would make a loss more likely. Items that may be considered include occupation, gender and marital status. A few things that do not go into the determination include race, ethnicity, national origin, religion, or income.

Details of coverage also play a part in determining rates. For example, the deductibles a customer selects and the endorsements or exclusions on the policy all help to determine rates.

Finally, state laws often require a driver to carry a minimum amount of insurance, and mortgage lenders usually require borrowers to have insurance on their property, making insurance a necessity. These affect rates as they’re usually required types of insurance to carry.

This information is a simplified explanation of a very complex equation of factors that determine what you pay for your coverage. For more information, contact your Merchants independent insurance agent.


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Erica Dalton

Merchants Insurance Group

Merchants Insurance Group sells its products through a network of more than 1,000 independent insurance agents in Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, and Vermont. We sell our products through independent insurance agents because we believe they provide value to policyholders through their broad range of products and their insurance expertise.