Think your auto insurance agent is to blame when rates rise or your auto insurance policy is cancelled after a claim? Or is your agent an angel who uncovered an unexpected discount?
In reality, your auto insurance agent is just the middle man; it’s your auto insurance company’s underwriter who holds all the cards in deciding what you’ll pay and whether your policy will be renewed.
But few consumers truly understand who – and what – an underwriter is. Here is an introduction to the person who holds your auto insurance rates in his or her hands.
Who they are
Underwriters are the middle men between your auto insurance agent and auto insurance company. Their job is to assess the risk of any driver before an insurer will cover that motorist. They use software to determine whether a driver meets the insurer’s standards to become a customer.
What they do
“Agents look first to see if a potential customer qualifies to be submitted to the company, and the company underwriter has the final say whether they are accepted,” says Kevin Alsup, vice president of insurance services at Foundation Financial Group in Florida.
The underwriter relies on a report generated by the insurer’s software that lists rate recommendations based on a driver’s requested coverage and deductibles. The underwriter studies the recommendations and, based on the company’s criteria and established rates, decides whether a driver should be offered coverage and what the premium will be.
Car insurance underwriters try to strike a balance between being too cautious and taking too big a risk when deciding whether to accept a client. If an underwriter accepts too many risky customers, the insurance company could be on the hook for a lot of costly claims, says R.J. Weiss, a financial planner at Weiss Insurance Agencies in Chicago. “But if underwriters don’t approve enough car insurance applications, the company will not make enough money from premiums,” he says.
Underwriters set rates for individual customers, not for an entire insurance company. Employees known as actuaries -- professionals who deal with the financial costs of risk -- determine rates for the entire company, Weiss says. Meanwhile, underwriters establish rates on a case-by-case basis, according to guidelines approved by the actuaries.
When reviewing an application, an underwriter also checks for potential discounts and applies them to an applicant's auto insurance rates.
When it’s time to renew your policy, underwriters will review your driving behavior during the past year. If you’ve racked up several traffic tickets or filed a couple of high-dollar claims in the past three to five years, underwriters have the power to recommend a rate hike or even drop you as a customer.
What information is used by an underwriter?
Weiss says these are some of the criteria reviewed by an underwriter to accept or deny an application and determine rates:
• Credit-based insurance score, which measures your potential risk rather than your creditworthiness. Some states, such as California, don't allow a motorist's credit history to be used in setting your insurance rates. • Driver’s age, gender and marital status. • Claim history of each driver who'll be on the policy. • Driving record. • Value of your car. • Geographic location. • How many miles are driven by you and how your car is used.
Who has the last word?
If coverage is declined, an underwriter informs your insurance agent, who passes the bad news to you. If you don’t have an agent, you’ll receive this news directly from the auto insurance company.
“Depending on the reason the underwriter rejected a driver, the agent may be able to ask the driver for evidence that will sway the underwriter to overturn his or her decision,” Weiss says.
Generally, however, the underwriter’s decision is final.
“There are times where there’s a miscommunication that leads to a rejection, or extenuating circumstances like an ex-spouse was the one responsible for the excessive accident claims, so it's important to know why coverage is declined,” Weiss says.