Factors That Affect Auto Insurance: From A Consumer Standpoint
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
42 out of every 100 licensed drivers age 19 and under, and 12 out
of every 100 licensed drivers 20–24 years of age, were involved
in crashes in 2000. NSC also reports that people under 25 represented
13.5% of the US driving population in 2000, but over one-fourth
(26.2%) of all drivers involved in crashes.
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 189.8 million licensed US drivers in 2000, 50.3%
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 NSC, male drivers were involved in about 45,600
fatal crashes in 2000. Female drivers were involved in 15,800 fatal
crashes.
The Insurance Institute for Highway (IIHS) reports that since 1975,
female deaths in motor vehicle crashes rose 12%, while male vehicle
crash deaths declined 13%.
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.
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 increase is based on average hospital
costs for 1997 and 2001
2 Percentage increase is based on average property claim costs for
1991 and 2000
Source: Insurance Information Institute, Fact Book 2002
Driving record
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 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
Family sedans typically cost less to replace and typically less
to repair than SUVs, and luxury or sports car models.
Up until 1999–2000, 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 on smaller vehicles.
Additionally, passive restraint systems such as seat belts and
air bags 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 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
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 law enforcement and local costs associated with auto
repairs and hospital and medical services.
Maintaining good credit
As noted in the previous section under 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:
Available discounts
Motorists can generate savings on insurance by maintaining a safe
driving record and committing to certain life-style 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:
- Driver training discount: For young drivers upon completion
of a driver training course.
- Good student discount: Limited to high school or full-time
college students over the age of 16. It’s usually contingent
on maintaining a B or better grade average.
- Antitheft device discount: Available from some companies
when vehicles are 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.
- 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.
- Safety feature discount: Available from some companies
to drivers of cars with air bags, since studies show that they
have reduced injuries to vehicle occupants. New York, New Jersey
and Florida provide discounts for antilock brakes (ABS). Some
companies have national discounts in place, while others have
phased-out these discounts since most newer makes and models provide
air bags and ABS systems as standard equipment.
- 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. (Click
here 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.
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
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