Factors That Affect Auto Insurance: From A Consumer
There are many variables that determine auto insurance premiums.
They are built on a foundation of loss experience, factors such
as inflation, and your personal situation. The following are some
of the key factors that influence premiums from a consumer standpoint.
Age and driver classification
In most states, age, sex and marital status are recognized as reliable
ratemaking criteria. Who can argue with the fact that the highest
premiums are assigned to youthful drivers, who as a group have the
worst driving record?
Youthful driver insurance premiums are based on years of statistical
information. National Safety Council (NSC) statistics show that
38 out of every 100 licensed drivers age 19 and under, and 17 out
of every 100 licensed drivers 20–24 years of age, were involved
in crashes in 2002. NSC also reports that people under 25 represented
13.6% of the US driving population in 2002, but over one-fifth (21.5%)
of all drivers involved in crashes. Also of note is the fact that
drivers 25-34 years of age comprised 17.5% of the US driving population
in 2002 and nearly 23% of drivers involved in crashes.
As a general guideline, families can expect their auto insurance
premiums to at least double when adding a new teen driver to their
Of the estimated 193.3 million licensed US drivers in 2002, 50.1%
were males. Males account for 62% of the miles driven each year
and have a higher fatal accident involvement rate than females.
According to the NSC, male drivers were involved in about 38,900
fatal crashes in 2002. Female drivers were involved in 13,800 fatal
The Insurance Institute for Highway (IIHS) reports that between
1975–2002, female deaths in motor vehicle crashes rose 14%,
while male vehicle crash deaths declined 10%.
In states that use the driver’s sex as a factor, women are
generally better risks on the road than men and are charged less
for insurance. The premium gap, however, has begun to narrow. The
nation’s largest auto insurer charged 16–20 year-old
boys 61% more than girls in 1985, and only 41% more now.
1 Percentage is based on Ohio adjusted average per diem hospital
costs for 1998–2002
Source: Insurance Information Institute, Fact Book 2004
Statistics show that those involved in at-fault crashes or convicted
of a serious traffic violation are more likely to be repeat violators.
The fact of auto insurance is that if you are involved in an at-fault
crash or acquire more than one traffic citation, your insurance
premiums will be adversely affected. Conversely, if you maintain
an accident-free record, you will likely receive the best rate an
insurer has to offer.
Most companies offer safe driver discounts to policyholders who
remain accident-free for a set period of time.
Nationwide Insurance, Ohio’s third largest private passenger
auto insurer, released a study in March 2004 regarding the impact
of crashes and moving violations on auto insurance premiums. DUIs
and drag racing infractions could cause premiums to double the year
after the violation and an at-fault crash can increase premiums
by 50%. Less severe infractions are assessed a “surcharge”
on a sliding scale over multiple years. A speeding ticket, for instance,
may cause premiums to increase 25% the first year, with surcharge
reductions taken in ensuing years if no other infractions occur.
Multiple infractions can cause premium hikes of up to 50% the insurer
Type and age of car
Family sedans typically cost less to replace and typically less
to repair than SUVs, and luxury or sports car models.
Up until a few years ago, liability insurance and medical payments
coverages were not affected by vehicle make and model. Before then,
only collision and other than collision coverages (comprehensive)
were affected by vehicle type. Some companies now use their claims
data on various makes and models to help determine liability and
medical payments coverage premiums.
As noted in the section “Factors
from a Company Standpoint,”
this additional rating criteria for liability insurance and medical
payments coverage insurance is partly due to the increased popularity
of SUVs and the potential damage they can inflict on smaller vehicles.
Passive restraints such as seat belts and air bags are standard
on new cars and have been for several years. Insurers now recognize
that some newer makes and models have taken safety features to the
next level, reducing the risk of injury to an even greater extent.
As a result, insurers may decide to use this as a factor in determining
future medical payments coverage premiums.
Use of car
If the “little old lady who only drove to church on Sundays” truly
existed, she’d be charged a
lower premium than most. Cars driven to and from work are more
vulnerable to crashes than those driven strictly for pleasure.
driving tends to usually occur in heavier traffic conditions.
Some insurance companies look at such variables as the number of
miles a car is driven annually, using 12,000 miles per year as the
average. This is because the chance of becoming involved in an accident
increases with the number of miles that are driven annually. So,
if the vehicle is used for business (not to be confused with driving
to and from the principal place of employment), the additional mileage
could influence coverage costs.
Conversely, most farmers enjoy lower rates because their vehicles
are seldom driven in heavy traffic. This discount does not apply
to vehicles used by farm family members engaged in occupations outside
of farming that require transportation to and from work.
At least one major auto insurer is experimenting with premiums
based on how much a car is driven and under what conditions. Through
a computer tracking device mounted to the vehicle, its use can be
monitored. The device uses cellular phone and satellite technology
to capture data such as how many miles are driven daily and at what
time of day. This program, which is strictly voluntary, is being
tested in Texas and is under consideration in other states as well.
The insurer says that some drivers have seen premium reductions
Where you live
The chances of filing an insurance claim for injury, vehicle damage
or theft go up as the number of passenger cars per square mile increases.
In fact, according to a 1993 study by the Highway Loss Data Institute
(HLDI), drivers who live in areas with the highest concentration
of vehicles are almost 25% more likely to file an auto insurance
claim under personal injury protection than those living in areas
with the fewest vehicles per square mile. The study found that the
likelihood that a driver will file a collision coverage claim is
about 40% higher in areas with 1,000 or more cars per square mile
compared with areas with less than 50 cars per square mile.
Theft claims, according to the study, are more than twice as high
in densely populated areas compared to the least densely populated
areas of the country.
Rating territories are designated geographical areas used by auto
insurance companies to accumulate statistics such as population
density, traffic congestion and other factors affecting exposure
to accidents. The arbitrary division of Ohio into territories for
rate development is as necessary as the boundaries developed for
tax structuring. An insurance company cannot divide a city into
separate territories. But it can have different rates for each city
in a county and dozens of territories across the state. A territory’s
insurance claim record generally is affected by traffic patterns,
road conditions, the quality of law enforcement and local costs
associated with auto repairs and hospital and medical services.
A Progressive Insurance study released in May 2002 reported that
77% of traffic crashes occurred within 15 miles of drivers’
homes. Conversely, 1% of reported crashes occurred 50 miles or more
The US Department of Transportation reports that in 1999, 60% of
all vehicle fatalities occurred in rural areas and 64% of all speed-related
fatalities occurred on rural roads. The Ohio Dept. of Public Safety
reports that of the 1,417 Ohio crash fatalities in 2002, 996 were
in rural areas. In 2003 there were 1,273 fatalities, with 913 in
Maintaining good credit
As noted in the section on insurance
company factors, maintaining
a good credit history not only benefits financial aspects of your
life, but also what you pay for auto insurance.
There is a proven correlation between the way you handle credit
and how responsible you will be as an insurance risk. An insurance
score uses some of the information found in your credit report,
so by maintaining good money management, your insurance premium
may indirectly benefit. To improve your credit score, and possibly
lower your insurance premiums in the future:
- Pay bills on time. Delinquent payments and
collections negatively affect your score.
- Keep balances low on unsecured revolving debt
like credit cards.
- Apply for new credit accounts only as needed
and close accounts on credit cards no longer in use.
- Review your credit reports annually to check
for inaccuracies. Not all inaccuracies affect an insurance score,
but it’s a good idea to keep them as error-free as possible.
Costs associated with reviewing credit reports vary by bureau,
but are all under $15. The three major bureaus and contact information
on each follows:
Trans Union: www.tuc.com
Motorists can generate savings on insurance by maintaining a safe
driving record and committing to certain life-style changes. Employing
driver discounts can mean a savings in the 10–20% range off
the bottom line of an auto insurance premium.
Most insurance companies offer auto insurance discounts, though
they vary from state to state and company to company. Among them
- Driver training discount: For young drivers
upon completion of a driver training course.
- Good student discount: For high school or college
students over the age of 16; usually contingent on maintaining
a B or better grade average.
- Antitheft device discount: Available from some
companies for vehicles equipped with alarms or disabling devices
that reduce exposure to theft.
- Multi-car discount: Available to those who
insure two or more cars with the same company.
- Multiple policy discount: Available from some
companies to individuals carrying more than one policy (i.e.,
auto, home, life and/or health) with the same company.
- Deductible discounts: Reduce your premiums
by covering more of the loss before your policy kicks in. Increasing
deductibles from $200 to $500 could cut collision
and comprehensive premiums by 15–30%. A $1,000 deductible
can save you 40% or more.
- Resident student discount: Offered by some
companies to an insured with a resident student, without a car,
at a college more than 100 miles from home. A premium reduction
may be available to those taking a car, depending on the college
- Safety feature discount: Available from some
companies to drivers of cars with air bags or daytime running
lights. New York, New Jersey and Florida provide discounts for
antilock brakes (ABS). Some companies have national discounts
in place, while others have phased these out since most newer
makes and models provide air bags and ABS systems as standard
- Nondrinker and/or nonsmoker discounts: These
are usually offered by specialized insurers.
- Completion of a state-approved senior driver defensive
course: Senior drivers 60 and older in Ohio can obtain
a discount by completing an accident prevention course. (See
section for a list of state-approved programs.)
- Commuter or carpools: If your mileage is limited
or you take public transportation to work or carpool, ask if a
mileage discount is available.
- Other discounts: Low annual mileage, safe driver
discount for remaining free of moving violations and/or crashes
for three years and policyholder loyalty discounts for remaining
with an insurer for a set period of time.