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Auto insurance is required in most states. Since it’s a product that you both need and are required to carry, it’s important to understand how companies determine how much you’ll pay for coverage.
While every company has its unique rate filing with the state, the factors that companies use to set prices for each applicant are the same across the board.
When you apply for insurance, the agent sends your application to the underwriting department so that proper reports can be run and all of your personal information that you provided on your quote form can be verified.
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What’s the difference between an insurance quote and application?
Auto insurance quotes and applications are two very different things. When you start comparison shopping, solicit several different quotes for an estimate on how much you’ll pay for coverage.
These insurance quotes are just a starting point. They aren’t a guarantee for specific pricing or an offer for insurance.
After you shop around and you’ve decided on one specific quote, the next step in the process is submitting your application for insurance.
You must provide very detailed information about your past claims, your driving infractions, and your habits so that the company is equipped with the knowledge it needs to decide if they would like to do business with you.
What is the purpose of auto insurance underwriting?
Applications must go through the underwriting phase before the company decides whether or not to extend you an offer for insurance.
Since auto insurance rates rely heavily on your statistical likelihood to file a claim, the company will spend their resources to run reports and look for contradictions in the answers you’ve given.
The purpose of the underwriting stage is to assess risk so that a company is better able to charge adequate premiums.
In the insurance world, a company will never have dead-on projections, but they can invest in underwriting to avoid losing out on profits at the end of the year.
If there were no underwriting, it’d be easy for applicants to say anything that they wanted to keep their insurance rates low.
How are auto insurance policies underwritten?
The internet has completely changed the way that companies can underwrite an application. In the past, it could take days or weeks to order reports and get results.
Now, underwriters can access virtually all of the information that they need to make a final decision by running electronic reports that display instant results.
Underwriters make their decisions based on the underwriting guidelines they are required to use. Each company has their guidelines that are used to target a particular segment of the market.
It’s normal for an underwriter to review each section of the application for obvious errors or contradictions. After doing this, they will run reports.
One of the most common reports that an auto insurance will run is the Motor Vehicle Report (MVR). MVR is a report that’s offered by a state motor vehicle agency that shows if a driver has any minor or major moving violations.
How does an auto insurance company run the record request?
In the past, companies would pay to order the report directly through the state’s motor vehicle agency.
While this is still an option, more and more companies are requesting instant MVR’s through consumer reporting agencies like LexisNexis.
The reports are more affordable for the insurer, and they are available from all 50 states.
Not only is it easier to process the request through a risk solutions company, but it’s also easier to read these MVR’s because there is a Standard Violation Code service when the driver has records from more than one state.
What is a Claims Loss Underwriting Exchange report?
Another very popular report that auto insurance companies run to evaluate your application is a Claims Loss Underwriting Exchange (C.L.U.E.) report.
It’s the one database where all licensed insurance companies can communicate with one another to help with future underwriting decisions.
C.L.U.E. reports include a seven-year loss history of all of the auto insurance claims that you’ve filed under a policy that you own. If you’ve filed a claim as a driver under someone else’s report, there’s a good chance that record won’t show.
Here’s what’s included on a detailed loss information report through the database:
- Insurance Company
- Policy Number
- Amount Paid
- Policy Type
- Loss Date
- Loss Status
- Loss Type
- Inquiry History
- Claim Dispute Information
What if your CLUE report isn’t accurate?
If a loss is mistakenly reported under your name, you need to contact the insurer that reported it. You can request a Loss History Report or a Letter of Experience that shows that it wasn’t your claim.
The insurer will then use this to remove the claim from your record.
Reports to Support Prior Driving Experience Claims
When you’re getting quotes for coverage, you should alway let the company know if you’ve been licensed in another state.
Failing to disclose that you’ve been licensed in another state will only work against you because insurers give driving experience credits when you’ve got experience behind the wheel.
You may want to get your own MVR from your prior state to support your claim to more driving experience credits.
This MVR should show when you were licensed and when the license expired. By providing official documents, the company has no choice but to offer you driving experience discounts.
It’s important to be upfront with your insurer when you’re submitting an application for coverage. The most effective way to price rates is to use an online rate comparison tool.