Auto and homeowners insurance data can be used for a variety of purposes:

• Determine whether rates charged are reasonable
• Identify false claims of insurance companies and insurance regulators
• Analyze the impact of law changes and regulations.
• Review individual insurer and industrywide profitability by state and by type of insurance coverage in relation to claims for higher rates or less regulation
• Analyze insurance availability and redlining. If insurers promise to increase insurance availability in underserved areas, this data will help document their efforts
• Track changes in insurance markets - for example, insurers may claim that rates have been reduced, but analysis of loss data shows that consumers are paying the same or more for specific coverages.

Purpose. This handbook provides an introduction to the topic of auto and homeowners insurance data and ratemaking. This handbook serves as a tool kit for consumer advocates working on insurance issues by discussing the sources, uses, and misuses of insurance data. Sections 2 through 4 of the handbook provide background on homeowners and personal automobile insurance sales, markets, and ratemaking. Section 5 discusses the sources of insurance data. Section 6 provides a glossary of insurance data terms.

What is Insurance? Insurance is a contract between a consumer (who may be an individual or a business) and an insurance company in which the consumer transfers the risk of loss for certain occurrences to the insurance company in exchange for a fee, or premium. The contract that transfers risk from the consumer to the insurer is the insurance policy. For example, a homeowner pays a premium to an insurance company in exchange for an agreement (policy) by the insurance company to pay the cost to replace the consumer's home if the home is destroyed by fire during the term of coverage. Or a driver pays a premium to an insurance company in exchange for an agreement by the insurance company to pay the value of the driver's vehicle if it is stolen.

Types of Insurance. There are many types of insurance sold. The types of insurance are generally broken down into two major categories: life/health (L&H) and property/casualty (P&C). Life/health coverages include life, health, and disability insurance. Property/casualty coverages are generally broken into personal and commercial lines. Personal lines are those coverages purchased by individuals, including private passenger automobile and homeowners insurance. Commercial lines are those coverages purchased by businesses and include commercial multi-peril (property and liability), medical malpractice, workers' compensation, and commercial automobile insurance. This handbook focuses on private passenger automobile insurance and residential property (homeowners) insurance; although the basic concepts discussed apply to all types of insurance.

Private passenger automobile insurance and residential property insurance are considered "lines" of insurance. Within each line are a variety of coverages. For private passenger automobile, the consumer typically selects several of the coverages for his or her policy. For residential property insurance, the consumer typically selects one of the major coverages. An important characteristic of coverages is whether they provide first party or third party coverage. First party coverage pays for personal injury or property damage to the insured. Third party coverage pays for personal injury or property damage that the insured causes to a third party.

Auto Insurance. Auto insurance generally covers your liability for bodily injury and property damage to others, and your costs in case of physical damage to your own car. Specifically, consumers may purchase:

• Bodily Injury Liability - This is third-party coverage. This coverage pays the other person (the third party) if you cause an accident and are liable for the personal injuries to the other person.
• Property Damage Liability - This is third-party coverage. This coverage pays the other person (the third party) for the cost to repair or replace the other person's vehicle if you cause an accident and are liable.
• Personal Injury Protection / No-Fault - This is first-party coverage. This coverage pays your medical bills and lost wages if you are injured in an accident, regardless of fault in the accident.
• Uninsured / Underinsured Motorists - These are first party coverages. UM/UIM pay for your personal injuries (UM Bodily Injury) and damage to your vehicle (UM Property Damage) if you are involved in an accident with another person, the other person is at fault, and the other person has insufficient (or no) insurance to pay the claims.
• Collision - This is first-party coverage. This coverage pays the cost to repair or replace your car if it is damaged in an accident, regardless of whether it was your fault or the fault of a third party.
• Comprehensive - This is first-party coverage. This coverage pays for the cost to repair or replace your car for damage caused by causes other than collision with another vehicle or object. The most common causes of loss under comprehensive are theft, vandalism, and weather-related damage.

Homeowners and Renters Insurance. Residential property insurance is a broader term for insurance most people know as homeowners insurance. The coverages are:

• Dwelling - This is first-party coverage. This coverage pays for damage to your house. An important factor for dwelling coverage is whether the coverage is for replacement value or actual cash value. The replacement value policy pays the replacement cost of the home, while the actual cash value policy only pays the actual market value of a home. If a $100,000 home is totally destroyed, for instance, but costs $125,000 to rebuild, the replacement value policy would pay $125,000, but the actual cash value policy would only pay $100,000.
• Personal property - This is first-party coverage. This coverage pays either the actual cash value or replacement cost of your personal property (excluding autos) that are damaged, stolen, or destroyed.
• Liability - This is third-party coverage. This coverage pays the other person (the third party) if you cause injury to the person or the person's property while on your property.
• Medical Payments - This is third-party coverage. This coverage pays the other person (the third party) for medical expenses incurred from an injury on your property.
• Loss of use - This is first-party coverage. This coverage pays for your living expenses, including rent, during the time your house is being repaired.