Car Insurance Prices Are a Reflection of Statistics

As you look back in your rear view mirror on how your car insurance premiums are calculated you may not see a strong reflection with how statistics are being used.  The fact of the matter is statistics used to determine your risk profile will be the difference between healthy margins or low margins for a car insurance company’s bottom line.  Statistics are used in many areas of our lives, whether it is getting a new loan for a home or signing up for life insurance.  Understanding the importance of statistics will help keep your car insurance premiums low on a consistent basis.

Statistics play a major role in pricing a new policy as they help assign a risk to a driver filing a new claim.  All data shows younger drivers get in 3-4 times the number of accidents than drivers with more experience.  So statistics will provide a high risk profile for most drivers under the age of 25.  The type of car will also provide an abundance amount of data to align your risk profile.  Drivers owning a high performance sports car with a high amount of horsepower are shown statistically to be more likely to file a claim as opposed to a driver owning a more conservative type of vehicle.  There are also many other criteria that will be used, such as if you are married, what type of job you have and where you live.  All of these variables will be reflected against statistical data an insurer has established to determine the level of risk you carry as a driver.

There is also plenty of data used that has little relation to your car or driving activity.  A good example of this is your credit score.  Most insurance companies have developed insurance scoring based on your credit activity.  If you have a history of missing payments or have had a bankruptcy, you will be seen as a higher risk.  Some of this information can seem a bit strange as there doesn’t seem to a strong connection to how you actually drive.  The application of your credit scoring is subjective and each car insurance company will have their own unique model to determine your insurance score.

The beauty of all of these statistics is each car insurance company will use them in a different manner.  Most of the above factors will be used, however, each company will assign a different weighting to each factor.  For instance, Insurance company A may assign a high risk if you have filed for bankruptcy or a foreclosure.  On the other hand company B may have adjusted their data for foreclosures and bankruptcies to account for the tough economic environment and drop in housing values to provide a lower risk for drivers with this type of profile.   It is unfortunate the insurance companies are not required to disclose all of their weightings as it would make it easier to shop for car insurance.  With the different weighting each company has there is a good chance you will see a wide range of pricing from different car insurance companies.

The good news is you don’t have any obligation to staying with your existing company, other than the 6 month policy you originally signed up for.  Shopping for car insurance is the great equalizer.  By getting quotes from many companies at the same time, which is easy to do on the internet, you are able to find the company that penalizes you the least for any negative data you have on your file.  It is a good idea to get in the habit of shopping for car insurance every 12 months.  Many variables, like the aging of your car, the miles you drive and your driving experience are continuously changing.  Checking in to receive pricing from different companies will assure you are always getting the best price for your risk profile.

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