Have you ever wondered how auto insurance rates are determined? After all, it’s pretty important. It impacts what you will pay for what may be one of the most costly and certainly one of the longest lasting expenses in your life.  In fact, over a lifetime, you might incur in the range of seventy to one hundred thousand dollars or more in auto insurance expenses!

Insurance Companies and Actuaries

Insurance companies employ statisticians called actuaries. Actuaries set the base rates for the different insurance coverages:

• Liability- Bodily Injury and Property Damage
• Collision
• Comprehensive (OTC or Other Than Collision)
• Medical Payments
• Rental Reimbursement
• Uninsured and Underinsured Motorists
• And many more

The object is to set rates that will make money for the company while still paying out on legitimate claims. Within the coverages, they look at factors that impact the premiums. You might be familiar with them. You complete them on the insurance application!

Factors That Impact Actuarial Decisions

When you complete an application for automobile insurance you provide all of the information needed to place you with your group. This includes age, distance driven, where the car is driven, type of vehicle, past accident/history, etc.

When your information is placed in a group of similar drivers your rate is determined.

For example, for some reason, married people get in fewer accidents that single people. So, the insurance rates for married people are less. Another example is that the leading cause of death for 16 to 20 year olds is motor vehicle accidents. So, rates for teenagers, especially males, tend to stay high until the age of 25.

Underwriting

Underwriting is a process of evaluating whether or not you’re a risk an insurance company wants to assume. Most personal auto insurance is underwritten with computer software. However, if you fall out of the norm, the underwriting process will be evaluated and determined by an underwriter.

Other Factors That Affect Auto insurance Rates

Other factors that can affect your automobile rates include:

• Accident History- Companies use insurance history reports to see if you’ve made any claims including how much money was paid out on those claims. They usually go back three years for his information.

• Credit Report- Companies use your credit history to determine which group you belong to.

• Motor Vehicle Reports- Companies look at the number of tickets and accidents you’ve received.

You might not think so, but insurance companies have very different ways of determining rates and underwriting process approaches. It’s best to shop around to receive the most favorable insurance rates for yourself.