Car insurance rates are tailored to you as an individual.
Although some people complain that the way in which insurers calculate the rates is unfair, it's not actually practical just to look at an individual's driving record. If this was the case, the fact someone has not made a claim in the last twelve months might be given undue weight because:
• he lives in a remote cabin and rarely ever sees other vehicles on the country roads he drives;
• she is only just learning to drive; or
• he is a senior who only takes the car out two or three times a week to go shopping at the local mall.
It is always important to take a broad view of an individual and gain a better understanding of who he or she is, and how probable it is there will be a claim. So this is a summary of the facts forming the basis of the assessment:
• Age. Young drivers just learning to drive are more likely to make mistakes than older and more experienced drivers. At the other end of the age range, seniors begin to lose the keenness of their sight and their reflexes slow down. Over the age of 75, their accident rate rises quite sharply.
• Sex. The statistics show that female drivers:
(a) make fewer claims than men of the same age and experience;
(b) the claims are for smaller amounts because they drive more slowly so there is less damage to property and fewer serious personal injuries; and
(c) are less likely to pick up tickets for any driving-related offenses.
• Address. The neighborhood where you live is important because it defines the volume of traffic you are likely to encounter, the level of crime affecting car owners and drivers, how far you have to drive to get to work, do the shopping, take the children to school, etc.
• Occupation. You may be at school or still pursuing studies, in work, unemployed or a senior. The statistics show people who go through the education system tend to have fewer accidents. Similarly, higher levels of accidents are associated with some jobs. Insurers have detailed expectations based on how you spend your time and how many miles a year you drive.
• Marital status. The statistics show young married couples, particularly those who have just produced children, tend to be the safest drivers on the road. Male singles tend to have poor driving records.
• Make and model. The choice of vehicle to drive says a lot about you as a person. If you choose a vehicle for fuel economy and safety, you are responsible in outlook and careful in approach. This is likely to mean you are a safe driver. But if you pick a high-powered model, this suggests you enjoy driving up to (and beyond) the speed limits and so are more likely to have an accident.
• Financial prudence. If you have been in regular employment, own your own home and have maintained a good credit score, the statistics show you are also likely to be a careful driver.
At the beginning of each trading period, the insurer will estimate the total amount it needs to meet all the claims likely to come in, add in the amount need to run the company, and hope for a profit. It divides this total among all the policyholders as the basic premium.
The cultural problem is simple. People respond to prices. If you reward safe drivers by allocating lower premiums and "punish" bad drivers by increasing the premium, drivers are encouraged to drive more carefully. Or, if the premiums rise too sharply, the bad drivers may simply decide to risk driving without insurance. In some states, up to 20% of all vehicles on the road are uninsured. The reason this is possible is the failure of local police forces to enforce the law.
The result is that good drivers are forced to pay more to insure against being caught in an accident with an uninsured driver. This rewards them for being a safe driver and then punishes them for actually driving in that state.
The insurers do not raise the car insurance rates to the levels actually required to reflect the probability of a claim. Instead the rates are held in a narrow range with the good drivers subsidizing the bad.
This is the least bad outcome because, if too many bad drivers refused to pay, everyone who remained would end up paying more.
What then prompts an increase in the premium rates?
If the free car insurance quotes for renewal from your current insurer come in higher than expected and there is no obvious reason, check with the insurer. Sometimes, this is simple a mistake or you may be the victim of identity theft. Indeed, as a general rule, you should always keep an eye of the accuracy of the records kept about you. You have a statutory right to free copies of your credit history and the claims reports held by the insurance industry. If you find errors, you have a statutory right to correct them or flag the reports as contested. Under most circumstances, correcting the records forces the insurance companies to reduce your premium rates. Indeed, many do so immediately they are notified, giving you the benefit of reductions up to the renewal date.
It is possible you are eligible for a range of discounts but are not aware of them. For example, there are discounts for buying both homeowners and car insurance from the same insurer or insuring multiple vehicles with the same insurer. Most companies also offer a small discount if you pay as an annual rather than on a monthly or quarterly installment plan. This is all about active communication between you and your insurer.
You have a general duty to keep the insurer informed of all the changes that may affect the calculation of the risk. So if you move home or modify your car to make it more difficult to steal, you must tell the insurer (and potentially earn a discount). If you are not sure what discounts apply, talk with the insurer to see how you may qualify for a reduction in the car insurance rates when the next car insurance quotes come around. Remember your aim is to buy affordable car insurance. That is the right balance between the scope of the coverage that protects you and the car insurance rates you pay.
Only by shopping around and talking with the insurance companies can you get the best deal.