This is a question i need explained to me by VifferFun.
I just received my renewal from StaeFarm for my 2005 Suzuki SV650S. I am 40, no tickets, not at fault accidents, nothing. I have my house,house insurance,life insurance and investments with them and have been with them for 20+ years.
I also have 2 cars although one is only on fire and theft right now and I am on a plan A, my house is in their best rated territory to live in.
Yet i have a rate jump from $798 to $1104 because they have changed the rate classification on 650 bikes and lumping them in with 750's and only a $150-$200 raise to a 1000cc bike.
Now i understand that you have somehting to do with helping insurance set their rates and i would like to hear what excuse there could be for saying a 650 is the same as a 750 and only $200 to go up to a 1000cc bike. That makes no common sense at all and for the money i would be better off buying a 1000cc bike even though i know its out of my league but if i am going to pay jumped up insurance rates from 650 to 1000 why would'nt I?
I await your response to this quesitons. Thanks for your time.
Hey Irocian,
First off, I don't work for State Farm. All of their actuarial work is done south of the border. I do work for one of State Farm's competitors. I personally think that State Farm is under priced on all of its Sport Bikes, but over priced on all of its cruiser bikes, but that has been discussed in another thread.
An insurance company will analyze it's loss data every time it does a rate review (which is typically once a year for motorcycles). At a very high level, here is what happens:
BASIC OVERVIEW OF HOW RATING DIFFERENTIALS ARE DETERMINED
STEP 1.)
We extract our loss data which has a number of indicators on the policy for each variable that we rate by (such as Age, Class, Displacement, Territory, etc.). Using Actuarial techniques, we estimate the ultimate amount that we will be paying out for claims.
STEP 2.)
For each indicator, we band the data. Hypothetically speaking, the displacement bandings might look something like the following:
0-50cc
50-150cc
150-250cc
250-600cc
600-750cc
750-1000cc
1000+cc
etc.
STEP 3.)
We determine the Loss Cost (i.e. dollar amount of claim per policy) for each banding. Suppose for the bandings described in step (2), it goes:
0-50cc ______$100
50-150cc ____$200
150-250cc ___$250
250-600cc____$300
600-750 _____$500
750-1000cc___$1000
STEP 4.)
We choose a "base" such as 250-500cc, and then determine the relativities of the other bands by dividing. In this example, 250-500cc would have a relativity of 1.000, where as 500-750cc would be 250/200 = 1.25. These relativities will be one of many that are multiplied to the base rate of your territory to calculate your premium. Some relativities will be greater than 1.000 (thereby increasing your premium), where as others will be less than 1.000 (thereby reducing your premium).
BASIC EXAMPLE OF A FICTIONAL TPL PREMIUM CALCULATION
Base Premium: $300
50yo: 0.800
Male: 1.100
Sport Class: 1.75
650CC: 1.500
Multi-Product: 0.900
Multi-Vehicle: 0.900
6 Years Accident Free: 0.600
2 Convictions: 1.100
TPL PREMIUM
= ($300)(0.800)(1.100)(1.750)(1.500)(0.900)(0.900)(0.600)(1.100)
= $370.48
Hopefully this should help make sense of the situation for you. Your problem is that State Farm decided to change their displacement banding, which they would only do if the claims history for the 650cc bikes are similar to the 750cc bikes. If they were drastically different, then they would each be in their own bands.
Does this help answer your question?
Cheers!
ccasion5:
