“The 7 Factors That Impact Your Auto Insurance Rates.”
A Free White Paper
By Tom Larsen, licensed insurance broker
There are basically 7 factors that all auto insurance companies use to determine what price you’ll pay for coverage. Despite many major advertisers saying “we have the lowest rates”, that is impossible because of the seven factors. And the weight each company gives each factor is totally different. One will use credit more heavily, one whether you own a home or rent and yet another where you live as a major factor.
So let’s get to the 7 factors and how they can affect you and your auto insurance.
Credit – Credit was never used until the last 10-12 years or so, when studies showed insured’s with highest credit scores, had the fewest accidents and/or claims. There are now some states who are attempting to make this illegal to use in insurance rating.
Age – How old you are usually relates to how long you’ve driven a car, so the more experienced people usually get preferred rates.
Homeowner or Renter – Many insurance companies give discounts for homeowners, as they tend to be more stable clients, stay with the company longer and are more responsible. Renters tend to move around more, have less stable jobs and drive older vehicles.
Where you live – A few insurance companies use “zip code” rating but a more popular one is rating by “territories”. So the town/city you live in could have 1 code, the next town over a different code and the next suburb over, yet another code. These territory codes haven’t changed much over the years and (in my opinion) need to be overhauled.
Your Driving Record – This will be run by a company you wish to place your auto insurance with on every new application. Because there is a cost involved to run these reports (MVR’s), most insurance companies do NOT run them annually. Any new insurance company will automatically pick up (and charge for) any activity that shows on your MVR.
Kind of Car You Drive – Do you drive an older, less expensive car or the latest and greatest Mercedes? Every vehicle ever made has a “symbol” assigned to it and that symbol is used in the rating too. These symbols are pre-determined by the year, make, model of the car, how expensive the parts to repair it are and the incidents of theft of that make/model. They also factor in the safety features, any alarm that comes with the car and highway institute rankings.
How you drive – Do you use your auto like a realtor does, showing people houses? Or take public transportation and only use the car for pleasure on weekends? Do you drive 1 mile to work or 25 miles 1 way to work. This usage question comes as one of the final factors in determining what you pay for auto insurance.
These 7 factors are so different from household to household, that it is impossible for any insurance company to be a “one-size-fits-all”. The changes from your driving record to the car you drive to homeowner vs renter are just too variable from person to person.
Plus, insurance companies as little as 7 years ago, had 5 or 6 “tiers” of pricing – like Ultra Preferred, Preferred, Standard, etc. Today almost all companies use 40 or 50 or 72 tiers of pricing! They use algorithms much like Google does in website searching. You start plugging in the factors and it keeps slotting you into their algorithm and what tier you belong in.