The Mystery of Insurance Prices
How does my insurance company come up with their price? Do I get a discount when I turn 25? Why does it matter where I live or what car I drive or who drives my car? The answer to these questions is maybe. Every insurance company have developed their own prices with their own “rating factors”. Rating factors are simply increases or decreases based on data gathered throughout the years and type of customer the insurance company wants to attract. There is no automatic discount when you turn 25 but you might see a decrease in your rate as you get older. You also might see an increase in your rate as you become quite older.
Insurance pricing is actually quite simple. Insurance companies determine a “base rate”. This is the starting point for your rate. There are simply discounts or surcharges that are applied to the base rate. Sound confusing? Well, it really isn’t. Insurance companies group all types of drivers and see where you fit in. If you have more driving experience, live in zip code that has less accidents, drive a car that “typically” doesn’t get into accidents, then your “base rate” will continue to go down. The bad news – if you live in a zip code that has a lot of accidents, or if you are not an experienced driver, or have vehicle that is expensive to fix, your “base rate” will go up. All things are not equal in auto insurance.
So how does this work?
Let’s say ABC Insurance Company starts everyone with a base rate of $500. If you are not an experienced driver they could assign a “factor” of 1.15 and if you are in a zip code that has a lot of claims they could assign a factor of 1.20 and if you have a vehicle that is expensive to fix, they could assign a factor of 1.10. You multiply $500 x 1.15 x 1.20 x 1.10 = $759. Just like that – your price is higher than the “base driver” and most of these are out of your control. You can’t move, getting more driving experience takes time, you love your car. So, what can you do?
You should find companies that charge you a price based on how YOU drive, not how people like you drive. Some companies use a combination of weather, terrain, type of road/highway and your focus on these conditions using artificial intelligence to determine how safe you are driving. Your rate is based on your focus. There are other companies that use “Telematics” to determine how you driving. Things like, speed, time of days, how hard you brake, your cornering speed, and your acceleration all play a role in determining your insurance rate. Either of these options put you in control of your insurance price. The safer you drive, the more discounts will be applied. Talk to an insurance agent to see if they have access to these types of insurance programs.
- By John Crispi
- October 1, 2021
