Anyone who has ever had to shop for car insurance may well have discovered huge discrepancies in the various quotes they are asked for by different insurance companies. Historically, this has always been the case to some degree, but even more so given the rise of cost comparison sites online. It’s perfectly possible to go to one of the major sites, enter your details, and get up to 50 or more different quotes. It is not uncommon for these quotes to be 200 to 2,000 percent different from top to bottom of the scale.

People who are not familiar with the insurance industry wonder how there can be such large discrepancies. While this may be relevant, what is more important is to realize that these discrepancies exist and take advantage of them to secure the best deal. It’s important to note that the best deal isn’t necessarily the cheapest, but it isn’t likely to be the most expensive either.

It is often assumed that all insurance companies assess risk in much the same way. This is true to a certain extent, depending on the amount of data they have and your experience in underwriting risks. Different insurance companies will have different levels of expertise in certain geographic areas, with respect to certain makes of car, and certain individual age groups and demographics. This experience will influence your understanding of risk, and may differ greatly from other insurance companies. You will have more information about this experience in these areas.

Rating a risk is not simply a mathematical formula, although in theory it is what it is based on. While an insurance company will assess a risk based on their own criteria and then charge you a small margin to make it profitable, that’s only half the story.

There has always been a theory and a practice about how insurance companies rate risks. The theory is that they will assess a risk, essentially on a percentage figure, which is what they charge as a premium. In reality, it’s also very much about what they can charge, or get away with, to win the business and make money from it.

This has greatly intensified the transition to many car insurance online, where it is considerably easier for insurance companies to link it to other types of insurance and to various utility billing, credit card or loan financing accounts. This means that insurance companies can enter into strategic alliances with other companies to obtain business that is mutually beneficial.

Insurance companies often undercut each other in a way that many businesses do to attract customers, hoping that retaining customers over time will allow them to increase their premiums and maintain business without customers moving elsewhere. . While that’s a pretty basic principle of how insurance companies work, it’s a lot harder to do online, it was a lot simpler on paper. It is very easy for a customer to switch insurance companies nowadays, and this has certainly eroded a lot of the loyalty that was felt towards companies in the past.

The other important factor is that insurance companies make much of their investment profit from premiums, as opposed to pure underwriting profits. With most types of insurance, premiums are paid up front and claims are paid much later. With auto insurance, the really big claims tend to be liability claims, which are notoriously difficult to settle and typically take several years to settle.

It is not necessarily that insurers are late, although this can happen. With liability claims, it often takes a long time to really assess the harm caused to an individual, and how and how that harm has impacted their lives.

What this also means is that, for a period of time, the insurer will generally not have to settle a claim. They could make an interim payment, but that would normally be at her discretion. This means that companies can hold on to premiums for quite a long period of time, before claims have to be paid. This allows them to earn significant investment income, which they can then use to offset their qualification level to attract the business they need.