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Determing The Cost Of Your Car Insurance Today

This question gets asked a lot and there isn’t one single answer. Most get autoHow Much Does? insurance quotes from either platforms such as ours or call the car insurance company directly. However, the question is why does your car insurance rates vary from one company to the next? How much your car insurance is from one company can vary quite bit from another. This isn’t like shopping for a pair of your favorite jeans. There are quite a few more factors involved and what I am going to do is explain in simplified terms why you can expect your auto insurance to vary and then estimate how much it may be.

Car Insurance Companies

Each insurance companies has their own way of determining risk. The way they determine risk is based on factors or commonly called “determining factors”. So lets see what the factors are:

  • Your age, sex, and marital status

  • Driving record

  • Where you drive (for example, your zip code)

  • How often and how far you drive

  • What vehicle you drive

  • Your coverage and deductibles

Now lets say all insurance companies are created equal and if you are 30 years old, drive a Honda Accord, have a clean driving record, live in New York City, drive 12,000 miles per year and have $500 deductibles for both comprehensive and collision. It would make logical sense if you went to insurance company A the cost of coverage would be (as an example) $1,200 yearly. And if you went to company B the cost of coverage would be (as an example) $1,200. Well, it doesn’t work that way.

Auto Insurance Companies Assign Risk to Factors

Driving with bad historySince I mentioned factors like age and the type of vehicle one insurance company may assign more weight to your driving record then another insurance company. Another example, is one company may assign more risk or weight to the type of vehicle you drive. So, now you know each company is going to weigh each determining factor differently which is why there are different car insurance quotes from different companies. If you had a major traffic violation two years ago, like a DUI, one company may weigh the risk differently then the other and in return your rates are going up from the DUI, but it may not be as high as other companies since they have what is called a pooling process.

The Process Actuarial Science and Assignment of Risk

Now, I don’t want to bore you with numbers which you don’t care about. You want the best deal on car insurance, or better yet you want to save on car insurance. What actuarial science in laymen terms is using a bunch really smart guys and computer machines to generate numbers and statistics based on risk. These are the guys behind the scenes working for the insurance companies to crunch the numbers and come up with statistical data to determine what the chance is of driver A with the “factors” (I mentioned above) to file a claim or get into a car accident.

Without going into detail and confusing you, each company has their own actuary to assign risk. A company like Geico is using the information every single day to determine how much a driver should pay for an insurance premium. Now if a the company decides to insure drivers which are more risk then they are going to use “their numbers” to increase the rates. However, the insurers must file their rates with the state since they are state regulated. The reason for this is they have to justify to the state any increases in car insurance rates. For example, if they are not making a profit and have to go into the cash reserves this would probably be explained by the car insurance company to the state. The only way for you to get an increase in rates is by getting a ticket, but they couldn’t raise your rates without the states approval and all the information is public record.

The Big Pool of Money

Insurance companies get their money from the premiums that you pay to them. If they have hundreds of thousands of customers then the pool of money gets bigger and bigger. On the other hand, if they have a lot of claims then they have to go into the pool of money to pay out the claims. If the situation becomespool of money severe enough then they have to go into their cash reserves. When that happens the shareholders of the company do not like it because the company is not making a profit. When you file a claim your insurance goes up because they company has to make up for what it paid out. Now, image that going on with thousands of people every single week? If thousands per week are filing claims then your insurance premium through time is going to go up since the company has to keep the shareholders happy by making money.

At the end of year, the company is going to “run the numbers” and determine how much of profit is made. There are too many factors involved to describe here and since I am trying to avoid confusion I don’t want to mention all of them. Take all the factors I mentioned above, the actuaries, pooling, high risk drivers, and drivers who filed claims, then think if the company didn’t make as much of a profit? What are they going to do? There are some things they might do; they might go to the state and raise rates for all drivers, and/or they might stop insuring high risk drivers, or they might assign higher risk to people with lower credit scores.

Credit Scores as an Example

Lets say at the end of the year their “number guys” and technology (the actuaries) found that those with a lower credit score filed more claims and had more accidents. What are they likely to do? Raise the rates on those who have a low credit score. They can do this with any of the determining factors and it doesn’t take a rocket scientist to figure out an eighteen (18) year old has a higher chance of being in automobile accident than a forty (40) year old.

Each Company is Different

You may have an idea how auto insurance companies are going to determine your rate or anyone for that matter. Each company has their own way of determining risk and each operates differently since they are going to have different actuaries or number crunching statistics to assign risk. They are going to use the numbers to mitigate loss and increase profits.

Why Insurance Fraud Is Bad

Auto Insurance FraudI am sure you know insurance fraud is not only bad, but illegal. I am mentioning this since those who do commit insurance fraud are taking money from the pool by filing false claims. In return this  increases the amount you have to pay.

  • Bodily Injury Claims – Every single day there are hundreds of people coming up with fake injuries, fake back injuries, and they go to a medical facility or doctor who is probably fraudulent too, and file a bogus claim. In 2007 there were more than six billion dollars claimed in fraudulent activity with this type of claim. That doesn’t include those which weren’t caught.

  • Underwriting Fraud – Drivers all over the country every single day are lying on their insurance application by doing things such as registering their vehicles in locations where premiums are lower, under-estimating their mileage, or saying their vehicle is only for pleasure use when the vehicle is driven over 20,000 miles per year. This adds up to more than 16 billion dollars in fraudulent claims each year.

Just in fraudulent claims the total is well over 20 billion dollars. That is with a “B” billion not million and you wonder why are insurance rates are going up? I realize this is something that is out of your control, but everyone who needs to have car insurance is a victim of the fraudulent activity by those who decided to game the system. Not only do you have to pay more, but major insurance companies have task force departments to check for fraud which cost even more money.

How Much Will My Car Insurance Be?

The first place to start is to get quotes. Get as many auto insurance quotes as youcost of insurance can and compare. All a quote does is take the information you have supplied such as your age, driver history, how much coverage you need such as liability limits, comprehensive, and collision limits. Then the auto insurance firm will deliver you a quote going through the whole process real fast as mentioned above. There is a lot of information going on behind-the-scenes when determining your rate. Each company has the own method so if you get another quote from a different company then you may have a higher or lower rate. It depends on how the company is going to run the numbers and assign risk to each determining factor.

The Undeniable Statistics

  • Young Drivers – If you are a young driver or if you are parent wanting to put your teenager on the policy you are going to pay more for car insurance because statistics show younger drivers get into more accidents by lack of driving experience.

  • History of Speeding Tickets – If you have a history of speeding tickets the insurer has good reason to believe you are going to get caught speeding again. In the end you will pay more for auto insurance until you stop speeding and clean up your driving record for three or more years.

  • Type of Vehicle – The kind of automobile you drive is going to determine your auto insurance quotes. It is common sense that a supra fast vehicle is going to cost more to insure. Also, it will cost more to insure a vehicle which is known to have expensive repair bills.

  • Other Factors – How much you will pay for car insurance is going to be determined whether you are rent or own your home, male or female, and how well you maintain your credit rating.

Some of the factors you have control of other you don’t, like your age. If you have a poor driving record ask about taking a driver safety course attempting to offset your current points on your record. The $150 to pay for the course is going to be a money saver since you will pay more than $150 dollars in insurance premiums over the next three years.

Comparison Shop and Review Your Policy

There are many things you can do to find out how much your car insurance will be, but the best bet is to make sure you have a little knowledge. Insurance rates are going up each year because of the fraudulent claims. Therefore, it doesn’t make sense to blame the insurer for an increase in rates, but maybe all the others which are filing fraudulent claims. I am sure you know the companies want to make a profit, however, with numbers of fraudulent claims into the billions is little out of hand in my opinion.

Comparison shopping is vital and even more important then ever before. If you don’t compare rates of other companies then you aren’t going to know if you are getting lower insurance rates with equal coverage. Even the state insurance commissioner sites recommend to comparison shop.

Don't Review Don't KnowReviewing your policy for accurate information is important. Don’t just assume all your information is correct. You want to do this for a couple of reasons. If the information is incorrect then you could be charged more than is necessary. Also, if inaccurate information is on the premium and you are in an accident the insurer may not pay out since they could believe it is fraudulent even though it was an accident.

Another reason to review your policy is to make sure you have the coverage you want especially if you have multiple vehicles. There was a person who had four vehicles under one policy and wanted to save on car insurance so he decided to call the insurer to get every single discount available and lower his auto insurance. He was saving money month after month, but when the vehicle he was driving at the time was broken into he tried to file a claim, but couldn’t since the car didn’t have comprehensive or collision coverage. He asked why there wasn’t full coverage on the vehicle and was told he requested to lower his auto insurance as low as possible. Attempting to fight it, he lost real fast since the insurer recorded the conversation, the policy was sent to him, and he didn’t review the policy.

Online shopping has made getting auto insurance quotes a lot easier and the first thing to do is to enter your five digit zip code at the top of the page. Our simple but advance quote platform will compare all of the top insurance companies in your area. You don’t have to get on the phone or drive two miles to an insurance agent to get a quote. The best part about the auto insurance system is it costs nothing to compare to see how much your car insurance will be?

Greg Fowler

Greg Fowler

Managing Member of AutoInsureSavings LLC, Greg enjoys writing articles to help drivers save on anything related to automobiles. Travel and enjoying the outdoors are some of his hobbies. The best way to reach him is at his Twitter or Facebook Profile.

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