Insurance Rates By Company And Essay Research

Insurance Rates By Company And Essay, Research Paper

ABSTRACT

The problem under investigation is to determine whether or not there is a statistically significant difference in the insurance rates by company and driver type. Data on the insurance rates were obtained from the Missouri Department of Insurance. The two-way analysis of variance procedure was used to reach valid conclusions. The study concluded that there is actually no difference in insurance rates among companies, but a difference in insurance rates among driver types. Therefore, there is no evidence that companies differ significantly in their insurance rates by companies, but there is evidence that companies differ significantly in their insurance rates by driver type.

Introduction

Insurance rates are no doubt very critical to both the companies and drivers. Missouri requires you to have a minimum amount of auto insurance coverage s. One is a bodily injury liability of 25/50 (up to $25,000 for injury-related expenses incurred by a single individual in an accident that is your fault; up to $50,000 for all such expenses from a single accident.) Another is property damage liability of up to $10,000. The other is uninsured motorist protection of 25/50.

The purpose of this paper is to use valid statistical procedures to determine whether or not the four insurance companies in Jefferson City, Missouri differed significantly in their insurance rates for the period of six months in the year of 1996. Extensive search was made on the Internet to locate relevant and reliable data on insurance rates. The homepage of the Insurance guide (www.insure.com) provided me with the required data on insurance rates in Jefferson City, Missouri. The data is shown in Appendix A.

The data in Appendix A is arranged in a format of a randomized block design (RCBD) where blocks is the insurance companies and the primary factor of interest are the single or married/sex/age. The statistical procedure that I used is the two-way analysis of variance (ANOVA) without replication. The Microsoft Excel software package was used to perform all necessary computations and analyses.

Bases on the analyses performed in this paper, I reached the conclusion that actually, there ware significant differences in the insurance rates of the four insurance companies for the period of six months in 1996.

METHODS AND PROCEDURES USED

Data

A search through the Internet was conducted to locate data sources for insurance rates in the U.S. For accuracy and reliability reasons, we decided to obtain our data from the homepage of the Insurance guide (www.insure.com). Table A-1, A-2, and A-3 in the Appendix, gives the insurance rates of four insurance companies in Jefferson City, Missouri for the year of 1996, respectively. This guide includes rate comparisons using six-month premiums based on rates in effect as of July 1, 1996. In addition to specifics explained later under “Types of Drivers,” the rates assume $1,000 in medical payments, that the driver travels 10 miles or less to work each day and drives approximately 15,000 miles a year. Preferred drivers, standard drivers, and non-standard drivers are the types of drivers used in the Missouri Auto Rate Guides. These examples use four hypothetical drivers: 19-year old male, 19 year-old female, 40 year-old adults, and 60 year-old adults. Gender-based rates tend to disappear after age 30. Preferred drivers get the best rates and have no accidents or moving violations on their recent record. In these examples, they carry liability coverage s of $100,000/300,000/50,000 (compared with Missouri minimums of $25,000/50,000/10,000). They have comprehensive and collision coverage’s with a $250 deductible. They drive a 1991 Ford Taurus. Standard drivers get average rates and, in these examples, have two moving violations on their record, carry liability coverage of $50,000/100,000/50,000 and comprehensive and collision with a $250 deductible. They drive a 1991 Honda Accord EX. Non-standard drivers have poor driving records and may have an at-fault accident and two speeding tickets on their record. They carry the minimum required liability coverage ($25,000/$50,000/$10,000) and no collision or comprehensive.

Procedures

The data in Tables A-1, A-2, and A-3 were reorganized to form an RCBD structure as shown in Table B-1, B-2, and B-3. The RCBD in Table A-4 through A-6 contains four rows and four columns. The rows are the four groups of single male, 19/single female, 19/married male, 62/married female, 40 and they represent the levels of the primary factor under study, which is the driver type factor. The columns are the four companies and they represent the secondary factor (insurance companies), which is the company factor. The RCBD was chosen as the appropriate experimental design in our investigation because it allows us to account for and remove the influence of the blocks (insurance companies) that may affect comparisons among the levels pf the primary factor (the single or married/sex/age).

The analysis of an RCBD requires the execution of several steps (see, e.g., Introduction To Business Statistics, Kvanli, et al 2000, pp. 475-481).

The first step in the analysis requires writing a null hypothesis and an alternative hypothesis for each of the primary factor (company) and for the block factor (driver type) a