How Do Car Insurance Companies Determine Rates?

When you shop for car insurance coverage, you will likely notice that different companies charge different rates for the same coverages and limits. You might also notice that your rates are substantially higher than those of your co-workers and friends. This is because auto insurance companies use a variety of factors when determining premium rates.

Factors that determine auto insurance premiums include:

1) Overall loss experience

Premium calculations for each coverage under your policy start out with a “base rate.” The base rate is the same for every policyholder and each additional person insured under a single policy. Base rates are determined by several factors; however, the company’s overall loss experience is usually the primary factor. Loss experience is the total amount of claims paid relative to the number of people the company insures. If an insurance company experiences high loss ratios, it will typically raise base rates. Conversely, if loss ratios are low, it will decrease base rates. Although it may seem unfair to pay more because of other drivers’ claims, this strategy helps ensure that the insurance carrier will have sufficient financial reserves to pay future claims.

2) Driver age

Your age plays an important role in determining your premiums. Because they have less driving experience, younger drivers are typically involved in more accidents than older, more experienced drivers. Drivers under the age of 18 usually pay the highest premiums, even if they have never caused an accident.

3) Driver gender

As unfair as it might sound, your gender also factors into your car insurance premiums. Statistically, men drive more aggressively and are involved in more accidents than women. For this reason, males usually pay higher premiums than females; however, the difference in rates narrows for drivers in their 30s and 40s.

4) Driving history

Insurance companies assign rating factors to base rates based on accidents and traffic violations that appear on your motor vehicle report. Even a single traffic ticket or accident can significantly raise your rates. If you have multiple accidents or citations, you can expect to pay substantially more for coverage than a driver with a clean record.

5) Geographic location

Actuarial statistics show that drivers in urban areas are more likely to be involved in accidents than those who live in rural areas. This is because urban areas have heavier traffic flow, more distractions, and more drivers trying to reach their destinations in a hurry. Also, drivers who live in certain parts of urban areas are at greater risk of vehicle theft and vandalism. As you might expect, drivers in urban locations typically pay more for car insurance than those in rural areas.

6) Vehicle type

The kind of car you drive can dramatically affect your auto insurance costs. If you drive a family sedan, you will likely pay lower premiums than a person who drives a Mustang or Corvette. Certain other types of vehicles also carry higher premiums. If you drive a Hummer or other large SUV, for example, your liability rates will likely be high. This is because large SUVs cause more vehicle damage and injuries to others than smaller, lighter vehicles. Similarly, you can expect to pay more for medical payments coverage and personal injury protection if you drive a compact car because most smaller cars offer limited physical protection to their occupants.

7) Vehicle age

Insurance companies charge higher comprehensive and collision rates for brand-new cars than for older cars. Because vehicles depreciate with age, an insurance company will be responsible for a lower payout if a 10-year-old car is totaled than if a brand-new car is destroyed.

Although there are some factors you cannot control, you can help keep your rates as low as possible by controlling other factors, such as your driving habits and the type of car you drive. Also, because insurance companies charge different base rates, you might be able to reduce your costs by obtaining

 Sam Jones the author, is often asked how to get cheap car insurance. He suggests the  uSwitch.com online price comparison facility where you can obtain multiple quotes all arranged in order of price with only one form fill

This article is copyright free.

Share:

Author:

Leave a Reply