This exercise is designed to test your knowledge and skills in shopping for auto
ID: 2596116 • Letter: T
Question
This exercise is designed to test your knowledge and skills in shopping for auto insurance and demonstrate how insurers price and underwrite this coverage. Your task is to obtain premium quotes for auto insurance on your car or a “hypothetical” car if you don’t own one.
You may shop and obtain personal auto insurance quotes from Progressive at http://www.progressive.com/home/home/.You can use Progressive as your “base” company or another company of your choice – if you use another company you can substitute it in the places where I refer to Progressive below. You will be asked certain information in order to obtain a quote, so you should be prepared to answer the questions accurately. Also, you will be asked questions about the coverages you want. You should use the provisions I list below or develop your own but I would like you to use the deductible amounts I list below. Note: it is preferable that you use Progressive as your base company as its website allows you to obtain comparative quotes from certain other insurance companies.
The objectives of this exercise are to have you undergo the shopping experience for auto insurance, reflect on why the premium quotes for various insurers differ and determine the incremental cost of: 1) lower physical damage deductibles; and 2) higher liability limits. I have provided advice on how to complete this exercise on a separate document “Shopping for Auto Insurance” that is also posted on Blackboard. You should read this document to help you with this exercise.
All answers must be typed, not handwritten.
Underwriting Information
Your Age:___________________________________
Vehicle: Year/Make/Model________________________
Suggested Coverages (You can start with a different set if you like but you must indicate what they are in your answers below)
Liability Limits: 25,000/50,000/25,000
Medical Payments: $1,000
Uninsured Motorists: Yes (same as liability limits)
Comprehensive Deductible: $1,000
Collision Deductible: $1,000
Rental Car Reimbursement $30 per day
Decline other coverages
1. Using the table below, show the amount of the quote you received from Progressive and its breakdown by coverage? [Note: you should show the 6-month amount, i.e. “paid in full”, NOT the amount you would pay each month] The Progressive website sometimes allows you to obtain comparative rates from certain other companies. If you were able to obtain comparative rates from other companies, how did their rates vary from Progressive. Alternatively, you may obtain a comparative quote from GEICO at https://www.geico.com/. Or other insurance company such as State Farm, Hanover.
Coverage
Limits/Deductibles*
6-Month Premium
Bodily Injury & Property Damage Liability
$25,000 per person
$50,000 per accident
$25,000 property damage
Uninsured Motorists Bodily Injury
25,000 per person
$50,000 per accident
Uninsured Motorists Property Damage
$25,000
Medical Payments
No coverage
Comprehensive
$1,0000 deductible
Collision
$1,000 deductible
Rental Car Reimbursement
$30 per day
Roadside Assistance
No Coverage
Total
*If you choose difference coverages and policy limits than what are shown in the second column then change what is shown in this column according to the coverages and policy limits you chose.
2. Discuss why different insurance companies charge different premiums for the same person, vehicle, and coverages (you can reflect on your own experience and/or why this happens to people generally). This phenomenon in discussed in the reference document but you should use your own words in answering this part of the question.
3. After you have received a quote based on your initial coverage selection, lower your deductibles from $1,000 to $500 and obtain a revised quote from Progressive. How did the quote change and why? What is the premium “cost” of purchasing lower versus higher deductibles?
4. Starting from the initial coverage package and quote, raise your liability limits. How does firms’ quote change and why? What is the premium “cost” of higher versus lower liability limits? How does the cost of lower deductibles compare with the cost of increased limits and what does this imply about optimizing your expenditures on auto insurance?
Coverage
Limits/Deductibles*
6-Month Premium
Bodily Injury & Property Damage Liability
$25,000 per person
$50,000 per accident
$25,000 property damage
Uninsured Motorists Bodily Injury
25,000 per person
$50,000 per accident
Uninsured Motorists Property Damage
$25,000
Medical Payments
No coverage
Comprehensive
$1,0000 deductible
Collision
$1,000 deductible
Rental Car Reimbursement
$30 per day
Roadside Assistance
No Coverage
Total
Explanation / Answer
a. Quote from Progressive
Coverage
Limits/Deductibles
6-Month Premium
Bodily Injury & Property Damage Liability
$25,000 per person
$50,000 per accident
$25,000 property damage
$361
Uninsured Motorists Bodily Injury
25,000 per person
$50,000 per accident
$13
Uninsured Motorists Property Damage
$25,000 ($1,000 deductible)
$6
Medical Payments
$1,000
$17
Comprehensive
$1,0000 deductible
$16
Collision
$1,000 deductible
$109
Rental Car Reimbursement
$30 per day
$27
Roadside Assistance
No Coverage
$0
Total
$549
b. Premiums that you would be charged by other companies - 6-month premium
The Progressive website sometimes allows you to obtain comparative rates from certain other companies. If you were able to obtain comparative rates from other companies, how did their rates vary from Progressive. Alternatively, you may obtain a comparative quote from GEICO at https://www.geico.com/. Here you should show and discuss the premiums that other insurance companies would charge you for the same coverages listed above (preferably at least one or two other companies). Note that Progressive will typically give a range for the premium rates they show for other companies (e.g., $500-$700) because of the specific underwriting rules that would be applied to you if you actually obtained premium quotes from these companies. You do not need to show the breakdown of the premiums for the other companies by coverage - you can just show and discuss how much their combined premiums would be.
Discuss why different companies charge different premiums for the same driver/owner, vehicle and approximately the same coverage amounts. You can make this specific to you or generalize it for a hypothetical person shopping for auto insurance.
Progressive comparison increased the medical to $2,000
Esurance Coverage quoted $1,005 for 6 months
Foremost Insurance Group quoted 1,788 for 6 months
Good2Go quoted $1,529 (reduced rental to $20 per day with a $600 Max) for 6 months.
Mercury Insurance quoted $888 for 6 months
GEICO quoted $1263.20 for 6 months.
Some companies don’t collect more information from the buyer, however, some do. While speaking with a Progressive representative learned that some factors can vary from insurer to insurer; it would all fall to how the insurer rates/weights their risk factors in comparison to how the other insurer does. Another reason is quality of service, renown companies for splendid customer service charge more due to their superiority above other companies that don’t have a great customer service. Even though is considered partly discrimination, some insurers would show higher rates to individuals they don’t want to be associated with, most likely individuals that could be higher risks. As any other market prices change and vary because of the market, either companies are growing or trying to remain exclusive, their rates will be mandated by the market they are trying to approach as well.
2. After you have received a quote based on your initial coverage selection, lower your deductibles from $1,000 to $500 and obtain a revised quote from Progressive. How did the quote change and why? What is the relative premium “cost” of purchasing lower versus higher deductibles? (Note: the reference document cited above discusses how you can calculate this relative premium cost).
After reducing the deductibles Progressives quote increased to $597. An Increase of $48.
The relative premium cost of purchasing lower deductibles ($500) would be
$48/$1,000 = $0.048 -> 4.8 cents per additional dollar of coverage.
The lower the deductible, the higher the premium; The higher the deductible, the lower the premium.
3. Starting from the initial coverage package and quote, raise your liability limits.
When raising the liability limit from 25/50/25 to 100/300/100 with $1000 deductibles the quote changes to $601. Progressive increased the quote by $52.
$52/$100,000 = $0.00052 -> The premium cost of raising the per person BI is 0.052 cents of a dollar. 0.52 of a cent per $10 of additional coverage.
The lower the deductible the higher the relative premium cost
The higher the liability limits the higher the relative premium cost
Because I’ve been in an automobile accident and I am dealing with the insurance and lawyers right now, experience has taught me that I would rather to spend more money on higher liability limits. The expenses that come from an accident add up and become extremely high where paying the deductible becomes less than 10% of all the money that is going to be spend only in BI, and if more than one person was involved in the accident then it adds up quickly. For example, just on medical expenses that the car at fault caused on my behalf, the cost has already gone above $15k, and treatments are still ongoing; the car is being treated apart and the expenses on fixing the car reached a little over $10k, my car was not the only one that resulted damaged due to the accident, and I believe the other 2 cars were totaled and were newer than the Camry I drive.
In conclusion, it makes more sense to pay higher liability limits not only because of better coverage but also because the cost for lowering deductibles is higher than the relative premium cost of purchasing higher liability limits.
Coverage
Limits/Deductibles
6-Month Premium
Bodily Injury & Property Damage Liability
$25,000 per person
$50,000 per accident
$25,000 property damage
$361
Uninsured Motorists Bodily Injury
25,000 per person
$50,000 per accident
$13
Uninsured Motorists Property Damage
$25,000 ($1,000 deductible)
$6
Medical Payments
$1,000
$17
Comprehensive
$1,0000 deductible
$16
Collision
$1,000 deductible
$109
Rental Car Reimbursement
$30 per day
$27
Roadside Assistance
No Coverage
$0
Total
$549
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