• How Auto Insurance Companies Use a Tier System

    Auto insurance companies in your state may be telling you about a tiered system that helps provide risk assessment data and set policy amounts for drivers. What is this tiered system, and is it in your interest as a driver?

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    Background on the Tiered System

    Before states had a tiered auto insurance system, auto insurers followed a very rudimentary system that was hard for some consumers to navigate. A driver either had problems in the form of “surcharges”, or they had a clear driving record. Consumer advocates and others found that this led to extreme changes in a policy based on one accident or bad mark on a DMV record. Legislative changes in some states resulted in the tiered system, a more sophisticated way of evaluating risk, where some drivers might not have to worry so much about one mistake on their driving record.

    Benefit to Drivers

    Most drivers who do end up with DMV points or other liabilities on their driving records agree that a tiered system works in their favor. In the tiered system, these high risk drivers can shop for insurance just like standard drivers, where their rates just maybe a little higher based on some different brackets for general risk assessment. However, through the tier system, the insurers can make more of an overall judgment on how much to charge a driver or household, so that the policies don’t fluctuate as much as they used to. Also, the tiered system helps drivers who may have been denied coverage in the days before this system. High risk drivers who were considered an extreme liability had to go to systems like a state assigned risk pool to get coverage. The tiered system alleviates these kinds of problems, and the state doesn’t have to get involved as often.

    How Auto Insurers Use the Tiered System

    An insurer will offer a driver or household a rate. Part of the premium price is based on a kind of table for risk levels. It’s a stable, predictable set of numbers. The insurer will use other insurance score data, such as ISO scores on a specific vehicle model, to get a better picture of what the risk really is for insuring a specific car and driver. Drivers can also negotiate and get better rates by telling the insurer rep about specific conditions regarding their use of a vehicle. A lot of setting insurance rates involve a little conversation between the insurance provider and the policy holder, but with a tiered system, extreme penalties that used to cut off these conversations are not as common.

    The above can help drivers figure out how to manage their risk levels in the state they are registered in. If your auto insurance is unaffordable or you have been denied coverage, ask if your state has a tiered system that you can use to get better rates and coverage on the open market.

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