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Auto insurance rating factors


Auto insurance rating factors

A common question among all customers is why do my rates go up? What is involved in changing my rates? Figuring out the factors that are used by various insurance companies to calculate rate increases and decreases can be difficult to understand, but luckily not impossible.

Not all insurance companies have the same rate increases at the same time. Insurance companies can do this because they use different risk assessors or variables for deciding about rate increases and when they are going to happen. This being true, it is still found that most companies typically use the same concept when factoring out car insurance rates.

If you ask an insurance agent how exactly the rates go up or why it might be hard for them to explain. This is because most insurance companies have devised their own mathematical algorithm. The company then feeds the insured's information into a computer which checks through information and spits out an answer. This algorithm may be too complicated for the average insurance representative to discuss, but they should have an underwriting guideline along with any rating change guidelines to help explain. You should always be able to understand your rating factors.

When you compare insurance companies, their computer system takes all the different rating factors and points, supplies them to the companies rating systems and comes up with a final number that is your premium.

The rating factors differ greatly, but there are many similarities in that they are all based upon historic facts (claims histories). New companies are starting to use new single rating factors like mileage or driving habits (range and driving styles determined by GPS systems that read speeds, range, and frequencies of stops). All companies will need to know about all members of the household who have a driver's license and are likely to drive the car. Even if the other drivers have insurance, the insurance company will need to know about them. Most insurance companies still use these standard rating factors:


The place where you garage your vehicle and, therefore, do most of your driving is important in the rating process. In some states (like California) you cannot use geographical location as a rating factor because of laws. Experience shows that more losses and accidents happen in urban areas than in rural ones. Therefore, urban areas or areas with higher claim frequencies logically pay more for insurance.

Driving Record

Accidents, traffic violations and claims (comprehensive or liability claims). Some companies look at 3 years, some look at 5 years and others look at 7 years. Most only look at incidents incurred by any driver that is covered by the policy during the preceding three years. Claim frequency measures how often claims occur within a group, per policy or persons reviewed in that group. Persons sharing characteristics with a group having high claims experience are charged more than if associated with a group having lower claim experience. The data used to show claim experience is gathered from the actual claims, which took place and an insurance company paid out claims.


Statistics show males have more incidents than females so companies distinguish this as a rating factor (grouping).


There are a higher number of incidents that arise from some age groups than from other age groups. It is a bell curve with the highest occurrences of claims at ages between 16 and 25 than ages 26 to 73. Drivers age 74, or older, have more occurrences than those drivers aged 26 to 73 do.

Marital Status

Claim statistics indicate a lower rate of car insurance claims among married policyholders than those claims among single policyholders.

Prior Insurance Coverage

Your new insurance company wants to know how long you have had continuous insurance, how long you were with your prior carriers, what limits you had with the prior carrier and the reason you left or are leaving that carrier.

Credit History

Insurance companies use credit information because they know from statistical data that there is a direct correlation between consumer's credit history and expected claims that may occur. Since they have started using credit as an indicator, they have found no better indicator to help them predict risk.

Vehicle Use

Companies need to know how the vehicle is used on the road. How often is the vehicle driven, how far are you driving, where is it driven, and for what purpose do you drive? Is there any liability exposure to the company for use in a business function? All of these items are important because each of them exposes the company and the vehicle or drivers to become involved in an accident.

Coverage and limits

The limits or exposure, clearly affect the cost. The more coverage you purchase, the higher the premium will be.

Vehicle Make, Model, and Style

The type and value of the car you drive directly affects the premium you pay for physical damage coverage and some property damage (liability or uninsured motorist) coverages. Every make and/or model of cars has a history, so you are placed into a similar rating group for this item. If a car has more theft or vandalism history or high repair costs due to body construction, it will carry a higher premium.

To make sure that the insurance companies are rating people properly they must file their rates with each state's insurance department. In this report, they must include how they determined their rates, which car insurance rating factors were used, and the base rates they will use for every location.

Quite simply, an insurance rate considers all these factors and the insurance company assigns you a rating factor by which they multiply the base rate for each type of coverage.

For example, a given insurance group may be priced at $200 per year for someone in a 35-40 year old age group, but if you are 16-21 your rating factor may be 1.5, you will be charged $300 ($200 X 1.5). This is simple approach, but each item above may have a different factor for each group and all of these factors are factored against the base rate to get your premium.

All insurance companies use the same basic criteria in determining rates; some weigh the various factors differently and this is the complexity of rating factors and rating systems. The only way to get the best coverage for the least money is to shop with independent insurance agents like Luckily, internet sites like ours make it easy to shop and compare rates of multiple companies at one site.

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