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How Insurers Determine Your Premium: An Interview with Grier Bomar of George Johnson Insurance

By Grier Bomar

Tell us a little bit about your company and its foundation.

George Johnson Insurance was founded in 1953 as a Nationwide Agency that evolved into an Independent Agency a few years later. We do business throughout the state of SC as well as NC and GA in both Commercial and Personal Lines coverages.

What are some of the services your company provides?

We are a multiline agency offering Commercial and Business Insurance including Workers Compensation and Professional coverages such as Errors and Omissions and Directors and Officers policies. We specialize in Fire Service risks, churches, non-profits and restaurants. In Personal Insurance we have a number of markets for Home and Auto and are especially completive in the high-end client market.

First off, what is the definition of an insurance premium?

Insurance is one method of risk transfer. Some policies are mandated by statute such as Auto Liability and Workers Compensation. Some are required by a lender to protect their interest in a collateralized loan, as in a home loan or a commercial property where money is loaned against real estate. Thus, a "premium" is the agreed price between an insured and the insurance company to accept that risk for a specific term or time. Please remember that the purchase of insurance is to protect a family or business from a potentially catastrophic event that would create a financial burden. The rates determined and used by an insurance company typically reflect a "worst case" scenario such as a total destruction of a home and all of ones possessions.

What factors do insurance companies use to determine your premium?

That depends on the type of policy being written. There needs to be a measure for the company to determine the amount of risk they are accepting. Most companies file their rates with state insurance departments which are typically approved by that department. In Commercial Lines, some policies are rated by square footage, number of employees or gross receipts. This measure is then modified by the company using their rates and enhancements or endorsements for the final premium. In Personal Lines, auto is rated using the make and model of the vehicle, the driver and their driving record and auto use. Recently, "predictive modeling" is a computer driven rating that has entered the Personal Lines market. For instance, in Auto insurance, the factors above are blended with other information such as home ownership, length at an address, credit history etc. to place a risk in a certain "tier." That tier determines the rate, again modified by limits of liability desired and deductibles. Homeowners insurance has gone through the same transition, as well.

Why is my income not a factor in this process? Isn't my income level important?

Income, specifically, is not used directly, but indirectly in the credit history piece that is now a part of the "insurance score" that the predictive modeling creates in Personal lines. Statistics have shown that folks with good credit along with other factors are less likely to file claims and be more profitable for an insurance company.

Why do insurance companies make it nearly impossible to qualify for the lowest premium?

Insurance companies are profit centered organizations?in business to generate a return on investment for their stock holders or insureds in the case of a mutual company. As mentioned earlier, they accept a risk for a price. There are clients that will get the best price, but they generally are in a certain age category, good credit, clear driving record etc. The predictive models have now created so many tiers that there can be very little difference in pricing between the best tiers offered by a company.

Is there any way to receive a reasonable premium with a low credit score?

It depends on your definition of "reasonable." What may be reasonable to the insurance company may not be to the client. The credit score is not the only factor in an insurance score. As mentioned previously, these scores are measures of stability. If some of the other factors are in better ranges, it could offset the negative of a low credit score. There may be a few smaller companies out there that are not using the predictive models, so I guess it may be possible.

What's the best way for people to get in contact with you and your company?

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