How Does My Carrier Determine My Auto Insurance Rates?
Curious about what carriers are doing to determine your auto insurance rates? We’re taking a look inside the industry — from the obvious things to some of the more obscure things that we probably don’t think about (but need to know).
As insurance agents, we know the list of items that affect your auto insurance rates by rote. There are some general rules of thumb that we’ve discussed here on the blog over time: multi-vehicle discounts, multi-policy discounts, good student discounts, etc. However, we’re going to focus more on the nuts and bolts of the rating process and what carriers are considering while keeping in mind that generally, multi-cars and home/auto discounts will always help the rates.
- Driving Record. Tickets and accidents affect rates.
- Age of Operator. Younger drivers cost more money (sometimes 200-300 percent depending on circumstances).
- Zip Code. Rates are based on where your vehicle is garaged. Generally, more populated areas create higher rates. For a majority of our clients, the difference between Waukesha County, Milwaukee County, and the City of Milwaukee can be significant.
- Mileage. How far you drive to work and your annual mileage are taken into account when setting your rate.
- Credit Score. Most carriers have been using some form of credit scoring for the better part of 15 years. We do have a few carriers who do not use credit, but for the most part, credit has become another tool that carriers use. Data has shown consistently that higher credit scores result in lower claim frequency. As long as that remains true, insurance companies will continue to use this to determine rates.
But you likely know all of this. What you might not be aware of are the new data points carriers are using to set your rates. Most of these are not used by all of our carriers, but the majority of our carriers use many of these considerations.
With technology increasing at a rapid rate, insurance carriers have more sophisticated tools than ever before to determine rates. If you speak to 10 different agents, you might get 10 different answers on whether some of it makes any sense — but the fact is: if an insurance carrier can use a segment of data to better predict the likelihood of a claim, they will use it in their rating.
Some carriers will make a charge for an accident — even if it’s not your fault. There are many opinions on this topic, but our general advice to clients is to be aware of this situation. It may be to your advantage to run a loss through someone else’s insurance. Even though it may be more cumbersome in the process, it can keep the not-at-fault accident off your claim history in some cases.
Some carriers believe that insureds with a repeated lapse history over time are a higher risk. One suggestion to prevent this? Put your policy on some sort of automatic payment, or pay fewer times per year. Many carriers give significant discounts if you pay the premiums in full.
Carriers will give discounts to drivers who agree to allow them to monitor their driving habits. Most commonly this is done with either a device that plugs into your vehicle or a smartphone app. These tools measure things like rapid acceleration, rapid braking, speed, and the time of day that the vehicle is driven to determine the impact on rates. The discount for the monitoring device might vary as the insurance carriers gather more information on your driving habits. Carriers may charge you more during occasions where your habits increase risk.
Vehicle History Scoring
Carriers will take into account the age and model of a vehicle, safety features, vehicle accident history, and other factors related to that model of car. Carriers who use these criteria believe that sufficient information exists to determine the likelihood that a particular vehicle will be involved in an accident — and further determine the severity of the accident.
Carrier logic is all over the place on this one. Some give a new car discount, while others believe that a car new to you could increase risk because the driver is not as familiar with the vehicle.
Then and now
All of this is reasonable new technology, but the end results remain to be seen.
In the nineties, insurance agents looked at age and driving record, went to a 500-page manual, and combed through charts by hand to determine rates for clients. The typical carrier would have Premier, Preferred, and Standard rates (three tiers).
With all of the technology at their disposal, some carriers may have well over 2,000 price points. In the long run, we hope it will allow them to charge a more competitive rate to a wider segment of insureds; it does make our job challenging, as we do not have access to many of these variables to tell clients specifically why the rates change. Our best defense is to educate clients on what goes into the rating, so we can help keep rates as low as possible.
Lindow is on your side.
Thanks again for allowing us to protect your families. As always, if you have questions on any of this, please give your agent a call.