Oklahoma has one of the highest costs of insurance in the country. So it is not very surprising that most Oklahoman's are highly concerned about their premiums. What options are there for consumers besides shopping around or reducing their coverages for them to get lower insurance cost? How about increasing your insurance grade?!
Did you know you had an insurance grade? Many people don't even know they have an insurance grade. The better the grade, the lower your premiums. So how do you increase your grade? Here are 5 things that affect your insurance grade, and what you can do to help increase your grade:
Your credit score carries more weight than any other aspect, in terms of premiums. Your credit score is more important than your demographics. One insurance company once told me that their clients credit scores are 60% if the determining factors in premium rating. So I always recommend that clients focus on increasing their credit score.
Why do insurance companies weigh credit score so heavily? Because those companies want to get your premiums as quickly as possible. Insurance companies use their income in two ways. First, they have to have a specified amount on hand to pay out in claims. These funds must be liquid and readily available so that claims can be paid quickly. These funds are considered by the insurance company to be expenses.
So the insurance company needs to find new avenues to generate income. They do this through investing your premiums. The quicker they receive your payments, the more money they make. This is why they want payment quickly. The better your credit score is, the more likely you are to not only pay on time but also to pay in full. Insurance companies love when their clients pay in full because it gives them more time to invest. That is why most insurance agencies offer discounts for paid in full premiums.
Quality of Carrier
Your current and previous insurance carriers also affect your insurance grade. Insurance companies like clients who are most likely to pay on time and less likely to file claims. If an A rated company is willing to bet on a client, then it is probably safe for another insurance company to do the same. So the higher rated the client's current agency the better the overall insurance grade is.
This is why I encourage clients to pay a little more for a better-rated insurance agency than a lower rated company. Even though you are paying slightly more upfront, you ultimately save much more over the course of the next several years this way.
Time spent with your carrier
The amount of time you are insured with an insurance carrier also can affect your insurance grade in a few different ways. You don't want to change insurance companies every year, but you also don't necessarily want to stay with one insurance company for too long. Insurance companies want to see stability with a client. They will shy away from a client who changes insurance companies every one or two years. A good quality insurance company will not be able to profit off a client who will stay with them for less than two years. Because of this, they like to see someone stay with a company for a minimum of three years.
However, they also don't want to see a client who never changes. This shows too much customer loyalty, and the client is less likely to change insurance companies at all. They possibly are just trying to keep their agent honest or trying to price check without any intentions of changing companies. Once you stay with an insurance company for over five years, new insurance companies become concerned.
Because timing is so critical to the insurance grade, I recommend having your agent shop your coverage every three to five years. This shows loyalty but also shows the insurance companies that you are concerned with your coverage and rates, and are willing to change.
Increased liability coverage
This one may surprise you, but you may be able to get lower premiums by increasing your coverage! For example, I quoted a client last week who was highly concerned with his premiums. "I've got to get the rates down," he told me. So he insisted that I run quotes with the minimum limits. I don't offer state minimums, so I quoted him 50/100/100 on his liability insurance. The premium came to $150 per month. I then ran a quote for 100/300/100, which changed his premiums to $140 per month.
This is possible for one very simple reason. There is less risk of an insurance agency going to court with 100/300 coverage than there is at 50/100, should an accident arise. Even though the coverage is higher, the risk has lowered. This is why it is important to insure first and look at price second. Shop carriers with the right coverage in place, don't lower the coverage just to meet the premiums.
Lower liability also shows a lack of responsibility by the client. Sorry, but that is how the insurance companies look at liability. They want you to put a heavy emphasis on liability. It is inexpensive coverage that has low risk and shows you are a responsible client. Insurance companies love to see this!
This should be a no-brainer, but filing a claim will drastically lower your insurance grade. Claims are bad and should only be filed when they have to be. Too many people are too quick to file claims these days. "It's over my deductible? Then I need to file a claim!" This is the mindset of most insurance clients today. The thought process needs to be, "If I file a claim, how much will I ultimately pay out in the long run?"
Claims stay on your record for five years! Most insurance carriers will not fault you for an auto claim after the third year, but it is still on your report. Most insurance companies will not write new clients if they have two or more chargeable claims on their record (home claims are chargeable for five years, auto three years). This became a large problem when 90% of Oklahoma City filed claims for their roofs in 2012 and 2013. Now many of them must stay with their carrier until 2017 because no one else will write them. They are stuck paying whatever premiums their current carriers determine because the client can not go anywhere!
I am not saying that you should not file a claim. I am saying that you need to consider all the ramifications of filing a claim before you do it. Talk with your agent and ask him what could potentially happen. These agents are licensed so that they can help you understand your options and your coverages.
If you focus on these five tips, you will be able to increase your insurance grade over time. It will limit your premium increase and may even decrease your rates over time. It is important for everyone to be concerned about what they are purchasing instead of buying the cheapest option because they are required to have insurance. If the government requires you to purchase it, there is a reason. As an independent agent, I take pride in helping my clients improve their insurance grade, keep their premiums low, and carry the right coverage. I hope this article helped you. If you are in the Oklahoma or Texas area, I would love to talk with you and see if I can help you and your insurance score.