The Auto Insurance Rate Maze

| Auto insurance, Blog.

Not that long ago when a prospective customer contacted us for an auto insurance quote, we could take a glance at their risk profile and know with reasonable certainty which insurance company would offer the best value.   How the times have changed!  With the advent of credit-based rating models and tiered pricing, there seems to be no consistency to our quotes.  Insurance companies factor an incredible amount of data into quotes and utilize this information in a myriad of ways to formulate your rates.  What this means for you is that no one particular insurance company is always the most competitive.  Read on to learn about the way auto insurance rates are developed, and what to expect in the future.

Credit Based Rating Models

By now most consumers are aware that credit score can affect insurance pricing.   How much of an affect varies greatly from one insurance company to the next.  Each insurer filters your credit data differently to create an “insurance risk score”.   This score is not your FICO number, but the two are often similar.  Insurance companies typically weight consistency and reliability heavily.  In other words, how regularly you pay your bills is more important than how much you owe, at least to your insurance company.

The use of credit for auto insurance rating is controversial and some States have restricted or banned its use.  Over the past decade,  there have been many studies conducted that show a correlation between credit and insurance claims.   Other studies have a shown a negative rate disparity among minorities and lower-income households.  The merits of credit based rating models will be debated for years to come.   What you need to know is that it affects your rate to some degree, and that advice your Mom gave you about keeping up your credit score is more relevant than ever.

Demographics

Much of your demographic information is still used to determine auto insurance rates, such as your age, sex and marital status.  For example, a 21 year-old single male will likely pay much more than a 40 year-old married male.   Rightly so, based simply on accident statistics for younger drivers, especially males.

In the last few years, many auto insurers have begun offering credits for a certain demographic profile, such as occupation and education level.   Safeco Insurance Company, for example, gives a discount to customers with a 4-year or other specialized degree.   CSE Insurance Company gives a credit to government employees of all types: teachers, state or city workers, police officers and firefighters.

Where you live can also have a significant impact your rates.  The Las Vegas area, for instance, typically has among the highest auto insurance rates in the country. Credit that to our 24-hour lifestyle, congested roads, high DUI rate and numerous lawyers. If you were to move to peaceful Mesquite Nevada, just 80 miles to the North, your rates might drop by 50% or more. Even within the same metropolitan area, auto insurance rates will very slightly from one ZIP code to the next, based on historical claim data in that area.

Obviously the type of vehicle you drive also affects auto insurance rates.  High performance vehicles and those with high repair costs are more expensive to insure.  Even two similar vehicles can have very different insurance rates based on safety features, crash tests, theft rate and repair costs.

What is never factored into your rate is race, ethnicity or religion.

Driving Record & Claim History

Your past behaviour is still a pretty good indicator of what might happen in the future.   Speeding tickets and other traffic violations all add up and impact the price of your auto insurance.   Major violations such as DUI and reckless driving may even cause certain insurers to refuse you a policy.

Past insurance claims are also factored in your rates.   Certain auto accidents are labeled as “chargeable events” and will raise your rates.   To be considered chargeable an accident must be attributed to your negligent behaviour.   This means you did something wrong or failed to avoid a situation that caused damage or injury.  For example, if you backed your car into a pole and damaged the bumper, your insurer would probably consider that to be your fault, even though no other vehicles were involved.  Other incidents, like you rear-ending another vehicle, would clearly be considered chargeable.

Some claims, however, will have little to no impact on your rates.  Towing or roadside assistance claims are a good example of incidents that most insurance companies ignore.  Glass repair or replacement claims, which fall under “comprehensive” coverage, are usually considered non-chargeable events.  The caveat with comprehensive claims is frequency – one claim may have no impact, but several in a short period of time might affect the your rating tier.

Tiered Rating

Rate tiering is a fairly new idea that is s common among larger insurers.   Think of tiers as discount levels with specific qualifiers needed to reach the next level.   The qualifiers are typically merit based: credit, driving record and claim history, vehicle type, etc.  For instance, you might have a high insurance score, no moving violations and drive an basic family sedan.  This might qualify you for the highest tier a particular insurer offers, except for those two vandalism claims you filed last year.   Although the vandalism claims are technically non-chargeable incidents, the frequency or number of claims might bump you into the next tier down.   Insurance companies argue that tiered rating allows them to more accurately price a particular auto insurance risk.

Mileage or Usage Based Rating

Imagine for a moment that your insurance company offers to install a GPS data recorder in your vehicle.   This black-box device records your location, miles driven, speed driven versus speed limit, g-force during braking, and more.  All of  this information is transmitted back to the insurer and used to price your auto insurance and settle claims.  This is the future, the brave new world of auto insurance rating you might say, and it is even more controversial that credit based rating.

Several insurance companies have launched pilot programs of this type in the last few years to customers willing to be monitored.   The pilot programs have largely been hailed as successful, resulting in lower rates and claims.  The idea is Orwellian to be sure – Big Brother watching your every move – but ultimately consumers, not insurance companies, will decide if the idea has any merit.

We Shop For You

The process of obtaining Nevada auto insurance quotes can be a hassle, but it is important you understand the methods behind the madness.  We are an Independent Insurance Agency, which means we offer you rates from many insurance companies.   In essence, we do the shopping for you.   Call or visit us online today – we look forward to speaking with you.

 

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