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Questions & Answers About Tier Rating
A tier is a rating level that is determined by a set of individual risk
characteristics.
The number of tiers varies widely from company to company. For specific information
you can contact your insurance company or obtain the Department of Banking &
Insurance's Consumer Handbook On Tier Rating by calling 1-800-446-7467. You can also
review each company's tier rating guidelines on the Department of Banking &
Insurance's web site at http://www.njdobi.org.
Your insurance company must state the tier level used to rate your policy on either
the declaration page or some other notice that accompanies the renewal of your
policy. You should also receive an explanation of your company's tier-rating plan
when you apply for new a policy.
Some people will see an increase in their premium because of tier rating, while
others will see a decrease. The tier rating law mandates that implementation of tier
rating be "revenue neutral." This means that an insurer cannot collect more in total
premium from their policyholders because of tier rating. However, the distribution
of the premiums charged will change.
The standard tier represents a company's basic rates. Absent any other applicable
risk characteristics, drivers with six or fewer motor vehicle points must be placed
an insurance company's "standard" tier. Preferred or lower-rated tiers may be
available for drivers who qualify based on favorable risk characteristics. Likewise,
some policyholders with less favorable risk characteristics may be placed in
higher-rated tiers.
The premium that a motorist pays for his or her auto insurance is primarily the
result of three factors - where one lives, what various risk classifications a
driver reflects, and what kind of car is driven. Of course, premiums are also
affected by the amount of coverage selected.
The goal of any auto insurance rating system is to develop individual policyholder
premiums that reflect each motorist's likelihood of being involved in an accident
or suffering a loss in the future. Rating systems are based on the fact that an
individual driver's potential for a loss (being involved in an accident, having
a car stolen or being sued) is influenced by certain objective characteristics.
Rating systems operate by assigning drivers to identifiable groups with similar
risk characteristics.
The risk factors each company uses to determine tier placement will be different
for each insurance company. Risk characteristics considered important to one insurer
won't necessarily carry the same weight with another. Insurance companies choose
risk characteristics that are specific and objective and related to the risk involved.
See Also:
Tier Rating Information
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