People often ask us how car insurance companies determine what rates to charge. Many factors determine what premium rate you see when you ask for quotes. A common misconception is that rates are set by law and can't be changed. Although the methods each auto insurance company uses when setting rates are regulated by state laws, the rates themselves are not set by the state. This fact means that there will be different rates for each company. Once you understand more, you'll see why comparing rates from different companies can save you money.
How is my car insurance rate set?
Let's look at what happens when you submit an application for car insurance. First, you are sorted into an individualized group based on each piece of information in your application, as well as other sources. Once your customized group has been determined, the insurance company calls up the pricing information for that group. Finally, any discounts you qualify for are subtracted from the price, and your quote is returned. The entire process is completed by sophisticated software behind the scenes, based on information you enter online or an agent types into a computer.
Claims (70%)Other Expenses (26%)Profit (4%)Where Does My Premium Go?Why do insurance companies have such different rates?
Because each company has many different small groups and different prices for those groups, rates can vary considerably from one car insurance company to the next. Each company has its own set of claim payments and expenses, and they must set rates based on that information.
What information can affect the car insurance rate quotes you receive?
Depending on state laws, which often restrict the type of information an insurance company may use, these factors will usually affect your rates:
Who You Are What You've Done
Age Had accidents
Gender Gotten traffic tickets
Marital status "B" average in school (for students)
Zip code Taken a Defensive Driver course
# of years licensed Let your policy lapse
Credit history Filed bankruptcy
Home ownership Filed lots of claims
Occupation
What You Drive How Much Coverage You Want
Year Bodily Injury and Property Damage
Make Medical Payments
Model UM/UIM
Hybrid? Comprehensive and Collision
Annual mileage Rental reimbursement
P
rice Roadside assistance
Safety features
Here's the breakdown by percentage of premium for coverages on a sample car insurance policy for a sample driver:
Liability (45%)Collision (37%)Comprehensive (9%)Uninsured/Underinsured
Motorist (5%)Medical Payments (4%)Coverages by % of PremiumAre auto insurance rates discriminatory?
Some things are always prohibited from consideration by law, such as race and religion, and others are sometimes not permitted, such as credit history, ZIP code, and the first speeding ticket. However, other factors that may seem unfair, such as age, gender and marital status are often considered. Since each company places a different weight on each factor, it's important to shop around to find the best Chicago, Illinois Indiana Ohio Michigan Texas Louisiana and Mississippi company for your situation.
