5 Factors That You Did Not Know Influenced Your Insurance Rates
When a policyholder receives their insurance renewal in the mail, one of the first things they will do review the premium. It is also natural for drivers to compare their rates with their friends and even their neighbors in hopes of determining if their insurer is charging them a competitive rate. While it might give a driver peace of mind when they find out they are paying less than their friends, doing this comparison is not an effective way to compare rates. Because insurance companies use so many different rating factors to calculate rates, the final rates will be influenced in different ways based on specific rating factors. Knowing these rating factors will help drivers understand just why their premiums are significantly higher or significantly lower than state averages.
Statistics and Insurance
Insurance companies spend a lot of time and millions of dollars each year studying statistics and coming up with rating formulas to calculate just how much to charge each policyholder. This is referred to as risk assessment. Because there is potential that every policyholder will file a claim, auto insurance companies will sit down, review an insurance application, and determine just how much risk the applicant presents. If the application and the statistics show that the applicant is low-risk, they may receive preferred rates. If the application shows that the applicant is in a high-risk area or practices risky driving habits, the applicant may qualify for higher standard or sub-standard rates.
What 5 Factors Will Affect Insurance Rates?
Drivers who have no experience as an insurance agent, underwriter, or actuary are often shocked to hear just what types of risks are considered when reviewing an insurance application or a policy that is up for renewal. The average driver might not think that their credit score changes the way that they drive, but to insurance companies, drivers with good or excellent credit are statistically more responsible drivers than drivers with poor credit. While some drivers may have poor credit and be excellent drivers, insurance is all about risk and statistics as a group. Several different factors influence rates, and some of these factors are beyond the control of the policyholder. Here are some of the major factors that will play a role in how much a driver pays for insurance in any state:
*1: Vehicle Ratings and Accident Statistics
While it may be obvious that more expensive cars come with higher premiums, the value of the vehicle is not the only factor an insurer will consider. Sometimes, inexpensive vehicles are rated higher than luxury vehicles because of accident statistics. If a vehicle causes a significant amount of damage in an accident or the vehicle statistically is involved in a lot of accidents, premiums will be higher.
*2: Age or Driving Experience
While age does affect rates in some states, other states cannot legally use age as a rating factor because residents argue that this rating factor is discriminatory. In states where age is considered, drivers under 25 pay higher rates. In states like California where age cannot be used, the number of years licensed is used. Drivers with less than 9 years of driving experience will be considered high-risk drivers.
The only way to change territory rating factors is to move. In each state, every discount is associated with different premiums. In areas where several claims are filed in comparison to the number of drivers in the area, rates will be higher. Areas with a lot of auto theft also tend to have higher rates.
*4: Loss History and Driving Record
A driver's driving record is one of the most well-known rating factors used to influence insurance rates. Drivers with no tickets or accidents will not be surcharged. Drivers with tickets or at-fault accidents within the last 36 months can be surcharged for the blemishes. Drivers with blemishes within the last 3 to 7 years still may pay higher rates because they may not be eligible for accident-free or claims-free discounts.
*5: Annual Mileage
Not everyone drives the same number of miles each year. Based on statistics, individuals who drive more are far more likely to file a claim. Drivers who drive less than the average in the state may receive lower ratings.
While there is no way to list all of the rating factors an insurance company uses, these are 5 major factors drivers should know about. Some insurance companies offer much more competitive rates than others, and finding out which company is most competitive is important to find affordable insurance rates. By visiting http://www.cheapcarinsurance.net/, drivers can see which companies cater to them and offer the best premiums.