From a Consumer Standpoint
Although there are many variables that determine auto insurance premiums,
they are built on a foundation of loss experience and trend factors such
as those resulting from inflation. Your personal or family situation also
comes into play. The following are some of the key factors that influence
auto 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? According to the Insurance Services Office, unmarried women ages 17–20 paid 47% above the adult base rate for auto insurance in 1980. By 1995, they paid 115% above the base rate. During the same period, young male driver premiums declined from 187% to 185%, still well above the adult base rate.
As a general guideline, families can expect their auto insurance premiums to at least double when adding a new teen driver to their policy.
Of the estimated 188.2 million licensed US drivers in 1999, half were males. Males account for about 63% of the miles driven each year and have a higher fatal accident involvement rate than females. According to the National Safety Council (NSC), 72% of the 1999 vehicle fatalities were caused by male drivers. However, for all crashes, female drivers have higher involvement rates than males. Per 10 million miles driven, the female involvement rate in crashes was 74, and the male rate was 63. According to Insurance Institute for Highway Safety, since 1975 female deaths rose 17%, while male motor vehicle crash deaths declined 16%.
The premiums that insurance companies charge youthful drivers are based on years of statistical information. For example, 1999 NSC statistics show that 29 out of every 100 licensed drivers age 19 and under, and 16 out of every 100 licensed drivers 20–24 years of age, were involved in accidents. NSC data also shows that people under 25 represented 13.8% of the nation’s driving population, but one-fourth of drivers involved in crashes.
In states that use the driver’s sex as a factor, women are generally better risks on the road than men and pay less for insurance. Recently, though, this gap has begun to narrow. Still, male youthful drivers may wind up paying about 40% higher premiums than their female counterparts, on average.
Driving record
Again, statistics have shown that those responsible for accidents or with a previous serious traffic violation are more likely to have repeat accidents than those with clean driving records. The fact of auto insurance is that if you are involved in at-fault crashes 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. Others even allow for a minor traffic citation or moving violation before adjusting premiums. These would typically be categorized as one- or two-point traffic offenses, such as some speeding violations.
Type and age of car
Lower-priced sedans cost less to replace and typically less to repair than sport utilities, and luxury or sports car models.
Up until last year, liability insurance and medical payments coverages were not affected by vehicle make and model. Until then, only collision and other than collision coverages (comprehensive) were affected by vehicle type. While some companies still abide by the latter, others have begun using their claims data on various makes and models to help in determining liability and medical payments coverage premiums as well.
As noted in the previous section on 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 sport utility vehicles and the potential damage they can inflict.
Additionally, passive restraint systems such as seat belts and airbags are now standard on all new makes and models, and have been for several years. Insurers have begun to recognize that there are newer makes and models that have taken safety features to the next level, and reduce 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 would be charged a lower premium than most. Cars driven to and from work are more vulnerable to crashes than those driven strictly for pleasure. Most work-related driving is usually in heavier traffic conditions than pleasure driving.
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 basing premiums on how much a car is driven and under what conditions. Through a tracking box mounted to the vehicle, the insurer can monitor the driving habits of the vehicle owner. 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 Houston. The insurer says that some drivers have seen premium reductions of 25%.
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.
The National Safety Council reported that 93.4% of all crashes in 1996 occurred in the drivers’ home state. Although the data is no longer available, NSC previously reported that over 80% of traffic accidents occurred within 25 miles of drivers’ homes. In addition, about 59% of all vehicle fatalities occurred in rural areas versus about 41% in urban areas. A territory’s insurance claim record generally is affected by traffic patterns, road conditions, the quality of traffic law enforcement and local costs associated with auto repairs and hospital and medical services.
Available discounts
Motorists can generate savings on insurance by maintaining a safe driving record and committing to certain lifestyle changes. Good 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 are:
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Driver training discount: For young drivers who have completed driver training courses.
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Good student discount: Limited to high school or full-time college students over the age of 16, and is usually contingent on maintaining a B or better grade average. Discounts could range from 5–25%.
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Multi-car discount: Usually available to those who insure two or more cars with the same company.
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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. Savings could be in the 15–20% range.
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Resident student discount: Offered by some companies to an insured whose family includes a resident student, without a car, at a college more than 100 miles from home. A premium reduction might also be available to those taking a car, depending on the college location.
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Safety feature discount: Available from some companies to drivers of cars with airbags, since studies show that they have reduced injuries to vehicle occupants. A few provide discounts for antilock brakes (ABS). Some companies have begun to phase out these discounts as most newer makes and models provide airbags and ABS systems as standard equipment.
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Antitheft device discount: Available from some companies to insureds whose vehicles are equipped with alarms or disabling devices that reduce exposure to theft.
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Nondrinker and/or nonsmoker discounts: These are becoming increasingly popular.
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Completion of a state-approved senior driver defensive course: Senior drivers 60 and older can obtain a discount by completing an accident prevention course. See next page for a list of state-approved programs.
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Commuter or carpools: If you drive just a few miles to take public transportation to work or carpool, ask if a mileage discount is available.
Portions excerpted from the Insurance Information Institute’s Sharing the Risk and Fact Book 2000, and Kiplinger’s Smart Ways to Save on Insurance, Winter, 1997
(CustomerStance, research offering of Conning & Company’s Marketstance Division and Surveys & Forecasts, Fairfield CT)