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A Consumer Advocate's Guide to Getting, Understanding,
and Using Insurance Data
companies and their lobbyists deluge consumers and the media with broad generalizations
about insurance that is often designed to promote legislative changes or rate increases.
The ideas float in a sea of numbers that can drown out opposing views-unless consumer
advocates learn to understand insurance data for themselves. Consumer advocates who use
publicly available insurance data to support sound policy proposals gain respect and
credibility from both regulators and news media. And advocates can quickly identify and
rebut the misuse of insurance industry data by industry lobbyists, a powerful tool during
negotiations over legislation or rates.
Auto and homeowners insurance data can be used for a variety
- Determine whether rates charged are reasonable
- Identify false claims of insurance companies and insurance
- Analyze the impact of law changes and regulations.
- Review individual insurer and industrywide profitability by
state and by type of insurance coverage in relation to claims for higher rates or less
- Analyze insurance availability and redlining. If insurers
promise to increase insurance availability in underserved areas, this data will help
document their efforts
- Track changes in insurance markets - for example, insurers may
claim that rates have been reduced, but analysis of loss data shows that consumers are
paying the same or more for specific coverages.
Purpose. This handbook provides an
introduction to the topic of auto and homeowners insurance data and ratemaking. This
handbook serves as a tool kit for consumer advocates working on insurance issues by
discussing the sources, uses, and misuses of insurance data. Sections 2 through 4 of the
handbook provide background on homeowners and personal automobile insurance sales,
markets, and ratemaking. Section 5 discusses the sources of insurance data. Section 6
provides a glossary of insurance data terms.
What is Insurance? Insurance is a contract
between a consumer (who may be an individual or a business) and an insurance company in
which the consumer transfers the risk of loss for certain occurrences to the insurance
company in exchange for a fee, or premium. The contract that transfers risk from the
consumer to the insurer is the insurance policy. For example, a homeowner pays a premium
to an insurance company in exchange for an agreement (policy) by the insurance company to
pay the cost to replace the consumer's home if the home is destroyed by fire during the
term of coverage. Or a driver pays a premium to an insurance company in exchange for an
agreement by the insurance company to pay the value of the driver's vehicle if it is
Types of Insurance. There are many types of
insurance sold. The types of insurance are generally broken down into two major
categories: life/health (L&H) and property/casualty (P&C). Life/health coverages
include life, health, and disability insurance. Property/casualty coverages are generally
broken into personal and commercial lines. Personal lines are those coverages purchased by
individuals, including private passenger automobile and homeowners insurance. Commercial
lines are those coverages purchased by businesses and include commercial multi-peril
(property and liability), medical malpractice, workers' compensation, and commercial
automobile insurance. This handbook focuses on private passenger automobile insurance and
residential property (homeowners) insurance; although the basic concepts discussed apply
to all types of insurance.
Private passenger automobile insurance and residential
property insurance are considered "lines" of insurance. Within each line are a
variety of coverages. For private passenger automobile, the consumer typically selects
several of the coverages for his or her policy. For residential property insurance, the
consumer typically selects one of the major coverages. An important characteristic of
coverages is whether they provide first party or third party coverage. First party
coverage pays for personal injury or property damage to the insured. Third party coverage
pays for personal injury or property damage that the insured causes to a third party.
Auto Insurance. Auto insurance generally
covers your liability for bodily injury and property damage to others, and your costs in
case of physical damage to your own car. Specifically, consumers may purchase:
- Bodily Injury Liability - This is third-party coverage. This
coverage pays the other person (the third party) if you cause an accident and are liable
for the personal injuries to the other person.
- Property Damage Liability - This is third-party coverage. This
coverage pays the other person (the third party) for the cost to repair or replace the
other person's vehicle if you cause an accident and are liable.
- Personal Injury Protection / No-Fault - This is first-party
coverage. This coverage pays your medical bills and lost wages if you are injured in an
accident, regardless of fault in the accident.
- Uninsured / Underinsured Motorists - These are first party
coverages. UM/UIM pay for your personal injuries (UM Bodily Injury) and damage to your
vehicle (UM Property Damage) if you are involved in an accident with another person, the
other person is at fault, and the other person has insufficient (or no) insurance to pay
- Collision - This is first-party coverage. This coverage pays
the cost to repair or replace your car if it is damaged in an accident, regardless of
whether it was your fault or the fault of a third party.
- Comprehensive - This is first-party coverage. This coverage
pays for the cost to repair or replace your car for damage caused by causes other than
collision with another vehicle or object. The most common causes of loss under
comprehensive are theft, vandalism, and weather-related damage.
Homeowners and Renters Insurance. Residential
property insurance is a broader term for insurance most people know as homeowners
insurance. The coverages are:
- Dwelling - This is first-party coverage. This coverage pays
for damage to your house. An important factor for dwelling coverage is whether the
coverage is for replacement value or actual cash value. The replacement value policy pays
the replacement cost of the home, while the actual cash value policy only pays the actual
market value of a home. If a $100,000 home is totally destroyed, for instance, but costs
$125,000 to rebuild, the replacement value policy would pay $125,000, but the actual cash
value policy would only pay $100,000.
- Personal property - This is first-party coverage. This
coverage pays either the actual cash value or replacement cost of your personal property
(excluding autos) that are damaged, stolen, or destroyed.
- Liability - This is third-party coverage. This coverage pays
the other person (the third party) if you cause injury to the person or the person's
property while on your property.
- Medical Payments - This is third-party coverage. This coverage
pays the other person (the third party) for medical expenses incurred from an injury on
- Loss of use - This is first-party coverage. This coverage pays
for your living expenses, including rent, during the time your house is being repaired.
A Homeowners policy refers to a multi-peril policy that
provides all five coverages. A Dwelling, or Fire, policy normally provides only the
dwelling coverage. A Renters policy normally provides all coverages other than dwelling.