Are your companies’ territorial definitions what they should be’

Here are some questions agents should ask to determine territorial quality:

1. When was the last time territorial definitions were changed? Not every individual territory needs to change every year, but state demographics are changing frequently enough that companies should be looking for changes every second or third year.

2. What are the building blocks used to define territories? If the territorial definitions are defined by counties, roads, rivers, etc. they are too large to do a good job. Zip codes would be some improvement, but still fraught with pitfalls and better alternatives, such as census block groups, are available.

3. Are you using one set of territorial definitions for all of your private passenger auto coverages or homeowner perils of loss? There are enough differences between coverages/perils of loss that each should probably have a separate set of territories. As an example, bodily injury coverage is generally related to two things, the occurrence of an accident and medical costs. Comprehensive coverage is related more to theft of vehicles, vandalism and weather related damage such as hail. Clearly, using identical territories for these two coverages is not as efficient as rating them independently.

4. Has the company used a multi-variate analysis to determine the correct territory rate relativities? This is something that an agent will need to ask the company. The advantage of a multi-variate analysis is that it recognizes the differences in make up of rating territories (e.g., not every territory has the same percentage of young drivers.) It also takes into consideration the correlation between territory and other rating variables. As an example, there is typically a strong correlation for homeowners insurance between territories and amount of insurance.