Factors that Affect Car Insurance Prices
Everyone knows that there are a great many factors that play into car insurance pricing. However what those exact factors are and how much they influence the cost of insurance. This guide will explain the basic framework used for car insurance pricing, and cover some of the major factors insurance companies consider when setting a premium.
Understanding the Basics of Car Insurance Pricing
Insurance is a market that is driven by statistics. It is impossible to tell the future, and so it is impossible for an insurance company to truly know what sort of risk a particular individual represents. As a result, insurance companies compile copious information regarding the various factors that are common across individuals who make insurance claims, and use this information in order to determine the price of insurance. Individuals who happen to fall into higher risk demographics will have to endure higher premiums than those whose demographic profile presents a lower statistical risk of the insurance company having to pay out.
Important Factors for Car Insurance Pricing
While there are many factors that car insurance companies use to determine the price, some are weighted more heavily than others when a car company is determining the price of your policy. Some of the most important factors include:
Age is a large factor in insurance pricing. Younger drivers are more likely to file a claim for a few different reasons. The first is the general lack of experience these drivers have when it comes to operating an automobile. This lack of insurance makes them more likely to have errors in judgement that can cause an accident. Additionally, youths tend to be more aggressive and reckless than older drivers, and this makes them more likely to engage in risky or dangerous driving habits like speeding or being negligent of traffic signs. Older drivers are significantly less likely to be involved in a claim, earning them a lower insurance premium.
Gender is another important factor when determining auto insurance rates. Males are statistically more likely to be involved with accidents, and also more likely to have tickets for speeding or other traffic infractions. These factors mean that females will get cheaper insurance premiums than a male who is, in all other regards, the same.
The car that is being insured may be the biggest factor in insurance pricing. The car can influence the price in a number of ways. For example, cars with security systems or immobilizers are less likely to be stolen, and therefore present a smaller risk to the insurance company. Another example is that more popular cars are at a greater risk of theft, and thus come with a higher insurance premium. Moreover, the car’s performance capabilities also strongly influence the cost of insuring it. A car with a large and fast engine is more likely to be involved in an expensive accident than a slower car. Finally, insurance companies take the car’s market value into account when determining pricing. The more expensive the car, the more money the insurance company will have to pay on a claim, and therefore the higher the insurance rate.
The existence of a criminal record for a driver is another factor for car insurance companies trying to determine the price. Individuals with criminal convictions are more likely to be involved in a claim, and thus insurance companies will charge more to cover these drivers. This is true regardless of whether or not the crime was motoring-related or involved cars in any way.
A record that has an even larger impact on insurance pricing than criminal records are driving records. Individuals with many convictions for speeding or failure to mind traffic signs present a much larger statistical risk for insurance companies, and so will face much higher premiums. However, those with clean driving records and a developed NCB, or No-Claims Bonus, can expect a much lower rate for auto insurance because of their established record of safe driving.
As you can see, there are many factors that determine how much an insurance policy costs. Every company determines their rates differently, so these factors may get different levels of importance depending on the company you are working with. This is why it is essential to shop around when you’re trying to find a new car insurance policy.