The Rating Process Overview
An insurance premium is not a single number pulled from a table. It is the result of a multi-step calculation that weighs dozens of factors — each designed to predict how likely you are to file a claim and how expensive that claim would be.
Understanding this process helps agents in three ways: you can explain pricing to confused clients, you can identify which carrier will rate a specific risk most favorably, and you can help clients improve the factors they control to get better rates.
Personal Auto Rating Factors
Auto insurance uses some of the most granular rating in the industry:
- Driving record: Accidents and violations within the past 3-5 years directly increase premium. A single at-fault accident can add 20-40% to the rate.
- Credit-based insurance score: One of the most impactful factors. Moving from a poor to excellent credit score can reduce premium by 30-50% with some carriers.
- Age and experience: Young drivers (16-25) and very senior drivers (75+) pay more due to higher claim frequency. The sweet spot is 30-65.
- Vehicle type: Safety ratings, theft rates, repair costs, and horsepower all factor in. A minivan costs less to insure than a sports car.
- Annual mileage: More miles driven = more exposure = higher premium.
- Coverage history: Continuous coverage history is rewarded. Gaps in coverage (even 30 days) can increase rates significantly.
- Territory: Where you live and drive determines your exposure to theft, accidents, weather, and litigation.
Homeowners Rating Factors
Homeowners insurance rating balances property characteristics with owner characteristics:
- Location: Fire protection class (distance from hydrant and fire station), weather exposure (hail, wind, hurricane, wildfire), and territory crime rates.
- Construction: Frame, masonry, fire-resistive. Masonry homes cost less to insure than frame homes due to lower fire risk.
- Age and condition: Newer homes with updated electrical, plumbing, and roof cost less. Old roofs are a major rating factor — many carriers surcharge or decline roofs over 15-20 years old.
- Replacement cost: The estimated cost to rebuild drives the Coverage A amount, which is the primary base for the premium calculation.
- Claims history: Both the property's CLUE report (claims on the property regardless of owner) and the owner's personal claims history affect the rate.
- Credit score: Similar impact as auto — significant premium difference between high and low credit tiers.
- Deductible: Higher deductible = lower premium. The relationship is not linear — the savings from $500 to $1,000 are typically larger than from $1,000 to $2,500.
Commercial Rating
Commercial insurance rating varies significantly by line but follows general patterns:
- General liability: Rated on revenue, payroll, or square footage depending on the class. Industry classification (SIC/NAICS code) determines the base rate.
- Commercial property: Rated on replacement cost, construction type, occupancy, fire protection, and loss history.
- Workers comp: Rated on payroll by class code, multiplied by the experience modification rate (EMR).
- Commercial auto: Rated on vehicle type, use (business vs pleasure), radius of operation, driver records, and fleet size.
Why Carriers Price the Same Risk Differently
Two carriers can look at the exact same risk and produce premiums 30-50% apart. This is not an error — it reflects differences in:
- Appetite: The carrier that wants your type of risk prices it more competitively
- Loss experience: Carriers with better claims experience in a class code can price lower
- Rating models: Each carrier weighs factors differently in their proprietary algorithms
- Expense ratios: Lower-overhead carriers can offer lower rates
- Growth targets: Carriers aggressively growing in a market may price below competitors
This is exactly why working with an independent agent matters — and why having access to multiple carriers through an aggregator creates real value. The agent who can compare 10-15 carrier quotes for the same risk will consistently find better pricing than the agent limited to 2-3 options.