I hear it over and over: “My insurance company is screwing me! They raised my rates again and I haven’t even had a ticket. Nothing has changed- yet I got another rate increase.”
It doesn’t matter what insurance carrier you have, how fantastic you drive, what type or program you are enrolled in, where you live, how old you are, what you drive, etc, etc. At some point your insurance company is going to raise your rate for “no reason” and it is going to make you upset.
But the customer still asks “WHY?” and wonders “How on Earth are these rates calculated in the first place?”
And so I will tell you.
Quick recap of insurance as a whole- remember- the whole business of insurance is RISK. You have to ask yourself this question-
If someone wants to buy the identical insurance product that you do and everything else being equal- if the chances are that they will get in to four times as many accidents as you and those accidents will cost millions of dollars more than you- is it FAIR that we charge them the same amount as you?
You are probably saying no.
Insurance companies agree- and they try to come up with the most accurate way to charge people “rates” so that the people who are most likely to have an accident (or even a serious accident) are the people who are going to pay the highest rates.
In order to do this, they have to look at a LOT of statistical information. And that information is on demographic data. Demographic data- if you know anything about it- is data on groups of people as a whole.
Why would my rate go up if I didn’t do anything?
Insurance carriers have to constantly make sure that they have enough money to pay out claims. So they have to be able to constantly adjust. For example, what would happen if all of a sudden the number of car jacking’s in your zip code doubled? Your insurance company would not really be set up to pay out that new amount of car jacking claims. They would pay them out- because they are the insurance company- but if they continued to do nothing (not raise rates) and continue to just pay these claims out- they would eventually go bankrupt. Since they can’t predict with 100% accuracy who is going to get carjacked- it’s not like they can go to those people in the future and ask them for increased rates- so the best they can do is put a rate increase on the entire zip code.
The entire zip code didn’t “DO” anything… but yet their rate increased.
And no- it’s not the customer’s fault that their neighborhood is becoming crime ridden… but someone has to pay for it… and the best way to do it is to have everyone spread out the risk.
That’s what insurance is- a way of spreading out the risk.
Note: States must approve insurer’s rate increases before they go into effect.
What is really involved in coming up with a price for my insurance?
It is not simply your gender, age, and driving record.
Believe it is or not- there are actually more than 100 factors that go into an insurance rate. This is why an insurance quote takes longer than 5 minutes!
Here are some things you may not realize affect your rate.
- Do you have current insurance and for how long?
Before shopping for insurance,marrie make sure you have had the company you are with currently for at least one full year. Anything less than one full year is going to make your rate go up dramatically. Also, you will probably get a better deal if you make sure you don’t change your insurance more frequently than every 2 years. Insurance carriers look to see how long you have been with your prior carriers and if you have been loyal- you are seen as less riskier; whereas if you shop and move every year- you look sketchy.
- The coverage you have had at your last insurance.
Are you carrying state minimum (25/50/10)? That won’t get you a discount! Protect yourself while driving AND protect yourself when shopping around by always carrying 100/300/100 or higher liability insurance on your autos.
- New car smell?
Many times, if you have a new car (3 years or newer), you can qualify for a discount. Ask your trusted advisor.
- Annual vehicle mileage
Take a few minutes and calculate the number of miles you drive each of your cars before getting your auto insurance quote. The more you drive- the riskier you are- because you have a higher chance of being in an accident. The less you drive, the safer you are rated to be.
- Credit Report
92% of insurers (according to research firm Conning & Co) use your credit information as a factor to determine rates (unless you live in California, Hawaii, or Massachusetts, which don’t allow the practice). Realize that your credit score plays a big factor in your rate. This all goes back to risk- studies show that people who have worse credit file more and higher claims than those who have better credit.
- Are you married?
Probably not a great reason to tie the knot… but married people get better rates. All that love must make them drive better, statistically speaking!
Drivers with more education generally pay less for insurance.
What did we learn today? Three things:
- That you should marry someone with really good credit, get a college education, and move to a really safe neighborhood.
- And understand that occasionally, insurance companies will make adjustments to price- even if you have done nothing “wrong” to spread out the risk and keep on chuggin’ down the road.
- Likely- no one screwed you over today. Keep smiling!