Dear Dr. Don,
I recently switched insurance carriers for both my homeowners and auto coverage — each policy was with a different insurance group. When I got the quote for both, the homeowners insurance was supposed to go from $603 to $498. However, when I received the policy, the premium was $635. 

When I asked the agent, he told me I did not qualify for the company’s Gold Star discount because of an auto accident I had last year. How does an auto accident make an impact on my homeowners insurance. Is such a practice legal? 

Keya Consumer

DDear Keya,
It’s common for an insurance company to offer a discount when you carry both auto and homeowners insurance policies with that firm. That said, the quote you get on the policies will be based on your past claims history and other factors, such as your credit history. In your case, the claims history on your auto policy was used as a factor in pricing your homeowners coverage and determining your eligibility for the firm’s Gold Star discount.

I asked Eric Wiening, CPCU and a colleague of mine at The American College, to respond to your question. Here are his comments:

“Insurance is a competitive business. Although various states may impose certain constraints, each insurance company is generally free to develop its own rating and underwriting standards in an attempt to attract the customers it wants and, at the same time, to charge rates that will develop premiums consistent with the insurance company’s expected losses and expenses. Different insurance companies may use different underwriting and rating criteria. Customers may, of course, compare the premiums charged by different insurers.

“Often, an insurance company has two or more rating ‘tiers’ for the preferred (lowest-risk), standard and nonstandard (higher-risk) drivers. Obviously, the lowest rates would apply to the drivers in the lowest-risk category, and vice versa. Because different insurers may use different criteria for determining eligibility for each tier, an applicant might fall into one insurer’s preferred tier and another’s standard tier. I was once in that situation myself. Currently, there is some controversy over GEICO’s use of occupation and education as rating criteria, but this practice has been upheld in at least one state.

“It appears from the Gold Star reference that the reader did not meet all standards necessary to qualify for the insurer’s lowest rates tier. Based on the information here, I would infer that one of the eligibility criteria established by this insurer was ‘no insurance claims of any kind during the past x year(s).’

“The reader might not like to hear it, but the insurer apparently believes — not without some logic — that homeowners who have not had a recent insurance claim of any type are somewhat less likely to have a homeowners claim than those who did. This might be only one of several criteria that apply in combination to establish eligibility for the preferred class.

“What can the reader do? Pay the premium if coverage is needed immediately, and then shop some more (policies can be canceled midterm by the policyholder) or shop again at renewal time. In all likelihood, the insurer is not bound to provide the coverage at the quoted price if the quoted price was based on incorrect information. In fact, providing insurance at less than the filed rates for an applicant in a specific category would likely violate the law.

“All else being equal, it is often advantageous to buy auto and homeowners coverage from the same insurer. I believe some offer a discount when this happens. In addition, coverage is likely to be best coordinated between the two policies when handled by a single insurer. It doesn’t happen often, but there are borderline cases where it might be argued which policy applies. Consider, for example, somebody who slips in the driveway while getting out of a car, or theft of snow tires that have been dismounted from the car and stored in the garage. Last but not least, price is not the only factor to consider when selecting an insurer.”

An insurer’s underwriting standards can’t discriminate, but as long as they can show that the factors they use in underwriting coverage aren’t discriminatory, they can use them to make underwriting decisions in how they price your policies. Your auto accident cost you the Gold Star, but that doesn’t mean you didn’t benefit from combining the two policies with one insurance company.

To ask a question of Dr. Don, go to the ” Ask the Experts” page, and select one of these topics: “financing a home,” “saving & investing” or “money.”