Abstract:
Property insurance rates are established by performing calculations for defining a single tier placement dependent upon a combination of mutually exclusive factors based on applicant data. In the case of a renewal policy, the factors include determining a protection class and a previous paid loss history. In the case of a new policy, the factors also include determining an insurance credit score. No single factor is the sole determinant for placement in a tier.

Description:
This application claims priority to U.S. Application Ser. No. 60/406,248 filed Aug. 27, 2002, entitled HOMEOWNER RISK SEGMENTATION AND DEDUCTIBLE INFRASTRUCTURE, which is incorporated herein by reference in its entirety. 
    
    
     BACKGROUND 
     The disclosures herein relate generally to establishing insurance rates for customers of a company, and more particularly to a system and method for establishing rates for a property insurance policy. 
     Establishing criteria for setting insurance rates is very complex and requires the consideration of a number of factors. Various combinations of factors have been considered in the past. It is important that the factors used are able to produce reliable results and consistent results. With respect to property insurance, a residence, for example, may include contents and/or or structure such as for example, an owned or rented single dwelling, condo or apartment. 
     Therefore, what is needed is a combination of factors that are consistently reliable in establishing fair rates for property insurance for both new and renewal coverage. 
     SUMMARY 
     One embodiment, accordingly, provides for establishing rates for a property insurance policy. To this end, calculations are performed for establishing a single tier placement dependent upon a combination of mutually exclusive risk factors based on applicant data. The factors include determining a protection class, and determining a previous paid loss history. 
     Advantageously, no single risk characteristic is the sole determinant for placement in a tier because a unique combination of the factors determine tier placement. 
    
    
     
       BRIEF DESCRIPTION OF THE DRAWINGS 
         FIG. 1  is a chart illustrating an embodiment of factors considered for a new policy tier placement. 
         FIG. 2  is a chart illustrating an embodiment of factors considered for a renewal policy tier placement. 
         FIG. 3  is a chart illustrating ranges of an insurance credit score. 
         FIG. 4  is a chart illustrating tier placement for a new policy. 
         FIG. 5  is a chart illustrating tier placement for a renewal policy. 
         FIG. 6  is a schematic view illustrating an embodiment of a computer system for use in analyzing a member profile and providing a tier placement. 
         FIG. 7  is a schematic view illustrating various modes of communication with a membership organization for insurance coverage. 
     
    
    
     DETAILED DESCRIPTION 
     Referring now to  FIG. 1 , it is illustrated in a chart designated  100 , that tier placement considers factors for a new policy including an insurance credit score factor at  102 , a protection class factor at  104  and a previous paid loss history factor at  106 . 
     Referring to  FIG. 2 , it is illustrated in a chart designated  200 , that tier placement considers factors for a renewal policy including a protection class factor at  202  and a previous paid loss history factor at  204 . 
     The insurance credit score factor at  102  is used to measure the insured&#39;s degree of responsibility. This factor is determined by using the commercially available ChoicePoint Attract™ standard auto model. The insurance credit score is a three-digit number based on a credit report from an appropriate national bureau. The report is scanned for such information as the number of open trade accounts, e.g. loans, charge cards, the payment record, i.e., late payments, the number of existing or past liens, the number of bankruptcy filings, etc. This factor is considered an indicator of the likelihood of an insured party to file a claim or have a loss in the near future. The insurance credit score factor is not an underwriting factor for renewal business (discussed below) after the first renewal, and will not be ordered reviewed on existing business. 
     An example of the three-digit number for the insurance credit score factor is illustrated in  FIG. 3 , at chart  300 , and divides the scores into ranges. For example, a score of 762-997 at  302  is the best score and is defined as Range 1. A mid-range score of 631-761 at  304  is defined as Range 2. A score of 200-630 at  306  is the worst score and is defined as Range 3. 
     The protection class factor at  104  includes an assigned number of from 1 (best) to 10 (worst). This number is provided by The Insurance Services Organization (ISO) on a nationally available rating table. The assigned number is the result of a study of fire stations and their ability to quickly respond to an alarm, the equipment used, the water carrying and pumping capability of that equipment, the proximity of hydrants, the fire personnel training, and whether those personnel are full time or volunteers. Another factor is the proximity of the insured&#39;s or applicant&#39;s residence to the applicable fire stations. 
     The previous paid loss history at  106  includes a study for the period dating back three years prior to the beginning of a new or renewal policy. This history is established using one or more of three methods. The first method is where the insured (or applicant) provides the information. The second method is where the insurer possesses the loss history such as in the case of a renewal. The third method is where the information is provided by a third party such as a commercially available service. One such service is the ChoicePoint Comprehensive Loss Underwriting Exchange (CLUE) data file. The previous paid loss history is represented by a number which corresponds to the number of all paid losses within the above-mentioned three year period. 
     The factors  102 ,  104  and  106  are used to determine tier placement at original issue through the first annual renewal. All factors are mutually exclusive and every policy will fall into one, and only one, rating tier based on the unique characteristics of each risk and the combination of these characteristics. 
     Thus, for a new policy, a tier of 2, 3 or 4, where 2 is best and 4 is worst, will emerge from a table designated  400 ,  FIG. 4 , which considers the insurance credit score from Ranges 1-3, the protection class ranges of from 1 to 10, and the actual number of prior losses of from zero to three or more. 
     For example, at line  402 , a new policy applicant having an insurance credit score which falls within Range 2, a protection class number of from 1 to 9, and no prior losses, falls into tier 2 of table  400 , and may therefore receive a preferred rate quote. 
     Also, for a new policy, at line  404 , an applicant having an insurance credit score which falls within Range 1, a protection class number of 10 and 1 prior loss, falls into tier 3 of table  400 , and may therefore receive a standard rate quote. 
     Further, for a new policy, at line  406 , an applicant having an insurance credit score which falls within Range 3, a protection class number of 10 and zero or more prior loss(es), falls into tier 4 of table  400 , and may therefore receive a non-standard rate quote. 
     For a renewal policy, a tier of 2, 3 or 4 will emerge from a table designated  500 ,  FIG. 5 , which considers no insurance credit score ranges, but considers the protection class ranges of from 1 to 10, and also the actual number of prior losses of from zero to three or more. 
     For example, at line  502 , an insured renewal having a protection class number of 10 and no prior losses, places the insured in tier 2, which qualifies for a preferred rate quote. 
     Also, for a renewal, at line  504 , an insured having a protection class number of from 1 to 9 and 2 prior losses, places the insured in tier 3, which qualifies for a standard rate quote. 
     Further, for a renewal, at line  506 , an insured having a protection class number of from 1 to 9 and 3 or more prior losses, places the insured in tier 4, which qualifies for a non-standard rate quote. 
     In addition, these renewal factors ( 202  and  204 ) will be used to determine tier placement at the second and subsequent annual renewal following original issue. Risk will only move the insured from their current tier to a higher (i.e. 2-3 or 3-4) rated tier at renewal when they fall within the listed ranges for that tier and have a paid loss in the last 15 months. 
     In one embodiment, a computer system  600 ,  FIG. 6 , may be used to establish a tier placement on tables  400  and  500 . The computer system  600  includes a microprocessor  601 , which is connected to a bus  602 . Bus  602  serves as a connection between microprocessor  601  and other components of computer system  600 . An input device  603  is coupled to microprocessor  601  to provide input to microprocessor  601 . Examples of input devices include keyboards, touchscreens, and pointing devices such as mouses, trackballs and trackpads. Programs and data are stored on a mass storage device  604 , which is coupled to microprocessor  601  for establishing a single tier placement as described herein. Mass storage devices include such devices as hard disks, optical disks, magneto-optical drives, floppy drives and the like. Computer system  600  further includes a display  605 , which is coupled to microprocessor  601  by a video controller  606 . A system memory  607  is coupled to microprocessor  601  to provide the microprocessor with fast storage to facilitate execution of computer programs by microprocessor  601 . It should be understood that other busses and intermediate circuits can be deployed between the components described above and microprocessor  601  to facilitate interconnection between the components and the microprocessor. 
     Such insurance coverage, discussed above, may be offered by a membership organization  700 ,  FIG. 7 , for the benefit of members. A member may access the organization for rates by several modes of communication including, but not limited to, Internet or Intranet  702 , phone  704 , fax  706 , in-person  708 , mail  710  or wireless  712 . 
     Although illustrative embodiments have been shown and described, a wide range of modification, change and substitution is contemplated in the foregoing disclosure and in some instances, some features of the embodiments may be employed without a corresponding use of other features. Accordingly, it is appropriate that the appended claims be construed broadly and in a manner consistent with the scope of the embodiments disclosed herein.