Why do rates vary so much between car insurance companies?
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Why do the rates vary so much between insurance companies?

Auto insurance rates do vary from one insurance company to another since each use their own rating system to determine premiums. Your car insurance premiums are based on how much risk you present to an insurance company, what it costs your insurer to conduct business, and how much money your insurance carrier estimates it will need to pay all claims during the year.

Each company will use their own system to calculate how much of a risk you are, and they differ on how much it will cost them to conduct business as an insurance provider and the amount of claims each carrier pays out annually.

To best determine your premiums an insurance company examines such factors as your age, the make and model of your car, your driving record, what kind of driving you do most, where you drive and keep (garage), your claims history and even your credit rating.

Insurance companies use a variety of factors to determine a policyholder's likelihood of experiencing an accident or loss. The cost of auto insurance for different drivers varies, as the level of risk for the insurance company varies. Not all companies consider the same factors. Some companies attach more significance to certain factors than others and thus your rates will vary from one insurance company to another depending upon the rating factors each insurer uses and the weight they place on the different factors.

Auto insurance companies have analyzed statistical information about millions of drivers and they have identified characteristics of drivers who are more likely to have losses for which the company would have to pay. The statistical information that insurance companies collect regarding driver types, etc can differ so that as well can make insurance rates differ.

For rating purposes an insurance carrier will normally group you together with other people whose age, sex, occupation and experience are similar to yours and use that statistical information to help calculate your rate. Many insurers also use the driver's credit history when determining a premium if state laws allow.

Beyond the rating factors that involve the policyholder, an insurer's own claims history experience is looked at. The cost of auto insurance also takes into account the amount needed by the insurer to cover the costs of accidents or losses that may happen in the future. Since insurance companies cannot see into the future they must use past claims history and experiences to help determine future losses that they will have to pay out on. Because each company has had different claims experiences with the groups of people they insure, the rates charged policyholders by different companies vary.

There is also the varying cost of doing business as an insurance provider that is taken into account when rates are set. Each company's cost of doing business (how much they pay to sell and service policies), along with their financial goals, is different, resulting in different prices being charged to consumers.

Car insurance premiums can vary widely between insurance companies due to the rating factors they use, the statistical information they look at, their own claims experience and the cost of doing business. Thus to get the best rates you need to comparison shop with various insurance companies to see which one can give you the best rates. Keep in mind to ask about discounts as well since they also vary by insurance carrier.

Most importantly, some carriers are better at setting rates for different classes of drivers. One carrier may focus their rates on inexperienced driver, while another carrier may focus its rates on mature drivers that only have prior insurance. Because of this, insurance company rates may vary greatly from company to company.

You can check with your state's insurance regulator to find out about state laws governing auto insurance companies. Also most states' insurance regulatory agencies tend to have a consumer auto insurance guide online that includes a comparison guide.


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