Severity and Frequency Rate change

[gemini78]

What is the name of your state? CA
I just want to know if anybody has heard of "SEverity and Frequency" rate change in an area causing an increase in insurance rate for autos. I was just told by my agent that this is the reason my rate went up- there is an increase in severity and frequency of claims where i live, not because I personally had a claim, that my rate increased. I thought this was ridiculous. I've never heard of such a thing. My agent continued to say this is legal and valid. By the way , my insurance is Farmer's.

 

[Some Random Guy]

Yes, insurance does change based on where you live. This is true for homeowners, renters and auto insurance. The differences can be staggering for adrresses only a few miles apart.

So if you live in Boston which resembles a demolition derby on some days, you will be charged more than if you lived, in rural Chalemont where traffic is less hectic. Why shouldn't they be able to do this? Insurance is about spreading risk. If you live in a riskier area, you pay more.

 

[alnorth]

This is absolutely valid. CA does have some unique laws which makes rating by territory more difficult than the rest of the nation, but its still there, and it is Actuarially justified. If you live in a college town for example, you are more likely to have an accident with a drunken idiot headed from a frat party, or if you are in a heavily urban area you are more likely to be hit than if you were in a rural area with very few cars.

Your own driving record is still a huge factor, but where you live is an absolutely legal and valid reason to charge you more or less for insurance, good drivers become "less good" when they have to defend themselves against more idiots on the road or against poor traffic conditions.

Those are the traditional frequency arguements, but severity comes into play too. Repair bills from the shop may be higher in some areas than others, the cost for a hospital visit may be more expensive than in other areas, and some areas may have more specific types of cars that tend to inflict or suffer more damage than other areas.

These days, they've actually got this nailed down to the zip code, updated a couple times per year.

FYI: "Frequency" = In a given population of drivers living in a specific area, how many claims are paid for accidents, "Severity" = Given an accident has occurred for a driver living in a specific area, what is the amount paid on the claim.

 

[ecmst12]

If it makes you feel better, they raised the rates for ALL of their customers in your area, not just for you

 

[moburkes]

If it makes you feel better, they raised the rates for ALL of their customers in your area, not just for you

Right! I'm not sure why OP thought this was ridiculous. If that was the case, his premium would be $0.00 when he changed to a new company, since he hasn't had any accidents, tickets, or filed a claim.

Premiums are based on aggregates.

Oh, and, by the way, it would be illegal for them to not change your rate when they change the rates of other like individuals.