Understanding Auto Insurance Rates

Although the word “accident,” by definition, means “unintentional,” many accidents are the result of negligence by at least one driver. Consequently, higher insurance costs exist for everyone. These higher premiums particularly affect individuals who may be considered at a greater risk of having an accident. Here’s a quick look at some of the things that may affect your automobile insurance costs:

Age Matters. In order to arrive at equitable pricing, automobile insurers spread the cost of accidents over the insured population. Since younger drivers account for a greater proportion of accidents than older drivers (Insurance Institute for Highway Safety (IIHS) 2002), premium rates are generally higher for drivers under age 25. On the other hand, statistics show that elderly drivers have the second highest rate of fatal crashes (IIHS, 2002), a fact which often contributes to higher insurance premiums for older drivers.

Points for Safe Driving. Most automobile insurers use a safe driver rating plan, or some variation of it, to reward drivers who have “clean” driving records, and penalize those who have a history of accidents and/or violations. Thus, the driving records of operators listed on your policy directly affect your automobile insurance premiums.

Where You Live. Population density and the number of vehicles on the road are two other important factors that contribute to your insurance costs. As people and cars vie for limited space on the road, accidents are more likely to happen. Territories (a town, a large city, a county, or some defined geographical subdivision) are rated based on the losses, or “risk” profiles, for such areas. Premiums are weighted by the record of insurance losses, such as accidents, theft, and vandalism, as well as the history of police enforcement of traffic laws in each given territory.

Your Vehicle. Certain cars may cost more than others to insure, depending on a variety of factors. Vehicles will generally be more costly to insure if they: are more expensive; are of a make or model that is a high theft risk; carry lower safety ratings; or cost more to repair. A common question for many policy-holders is, “Why isn’t my policy premium going down as my car gets older?” Premiums tend not to decrease because liability concerns remain the same regardless of the age of your car; furthermore, the costs to fix an older car are generally comparable to the expense of repairing a newer vehicle.

In summary, it is the driver’s record, his or her vehicle, and its use that set the basis for calculating auto insurance premiums. Some of these factors may or may not be in your control. To understand what is in your control—and how to use it to your advantage—feel free to call or e-mail us. One of our qualified representatives will be happy to address any of your auto insurance concerns.