To really understand this question takes a little bit of digging. This is THE most common question that gets asked, after insured’s experience a loss and before they file a claim.
This is a difficult question to answer because it takes a lot of understanding as to how insurance gets rated in the first place, which can be different from each policy that gets issued by each company. There are many rating factors, or things that the insurance company will look at when deciding how to rate car insurance customers.
Traditional rating factors that companies have used for determining how much to charge a person on their car insurance, include:
- Male drivers, especially younger male drivers tend to be more aggressive behind the wheel of a car, increasing the likelihood of a crash. In 2014 the motor vehicle death rate for male drivers and passengers age 16 to 19 was two times that of their female counterparts.
- A person’s age may be used to determine likelihood of loss. For example, a 16-year-old may be more likely to get into an accident over a 30-year-old, due to their inexperience with driving. Or, an 85-year-old may also be more likely to cause or be involved in an accident than someone else, also making the potential claim payout for bodily injury greater.
- Drivers between 16 and 19 are three times as likely to be involved in a fatal crash than drivers 20 years or older.
- Marital status
- Based off claims data, it is usually found that young people tend to be safer drivers if they are married compared to their single counterpart. This is one that might not have a big understanding as to why that is, but insurance companies will use claims data to help them determine future pricing models.
- Principal operator
- Who the main driver of a car is going to be will affect the rate given for that vehicle. Will the driver of a newer and more expensive car be a younger more irresponsible driver, or older more mature and safer driver?
- Use of the vehicle
- How the vehicle will be primarily used could also determine the rating factor. There are usually four classifications for insurance; 1. Pleasure use – not being used primarily for a commute to and from work – Occasional use of the vehicle, 2. Commute – to and from work. 3. Farm – Used in operation of the farm and not usually taken off the premises. 4. Business – used in the day to day operation of person’s business, like making deliveries for clients.
- The total miles driver is a big rating factor that companies may put more and more emphasis on. The more time spent on the road and miles driver, the greater the chance for a loss.
Some of these rating factors have been challenged in court for reasons of discrimination and they are; gender, age and marital status. Some states have even banned the ability for companies to use one or more of these when determining their rate for car insurance.
- Credit based premium
- In the early 1990’s perhaps one of the biggest changes to the insurance company up to that point, was the introduction of credit based premium. Actuaries have determined a correlation between a person’s credit score, which will help determine how well a person handles their financial affairs and insurance claims.
Driving can also be monitored by a telematic device. This device can be installed in a person’s car, that will collect information such as driving time, hard braking and total miles driven. Telematics is (believe it or not) a less nerdy way of saying – integrated use of telecommunications with information and communications technology which includes any device that merges telecommunications and information such as a GPS system or a navigation system.
Individual driving records are looked at as well. Things like years of driving experience, traffic violations, at-fault accidents and number of annual miles driven are very clearly relevant factors.
How Do Insurance Companies Rate for Claims?
Again, this is a tough question to answer on a blanket basis, because each insurance company out there will be slightly different to “set themselves apart” from their competitors. I will use some general rules of thumb to help better understand how companies will look at charging an individual for claims.
Generally, insurance companies will look back on your driving record up to 5 years. So, if you have an accident from 5 years ago, you could technically be rated for it in the underwriting process. So, the rating that you could receive is based off your current driving record, and your history as a driver and opening another claim would send you into another “rating class”
Let me tell you what I mean.
One of our companies who I will keep anonymous shared some of their insurance rating information with me.
I won’t bore you with the confusing language, but what it’s saying is that depending on the policy and insurance company may allow certain risks to stay insured. If you have a multi car policy verse a single car policy they will be slightly more forgiving of your accident history. Not at fault accidents are of course rated different than at fault accidents. Speeding tickets depending on the speed are also given a different weight in the barrier. We can begin to truly understand the heavy lifting that goes into determining the rate for each claim, accident or violation.
The LAST question to ask before deciding whether you should open a claim is this very important one:
What is your Current Deductible and how much is the damage going to cost to repair?
This might be an obvious one, but if you think about what your deductible is and then how much it would cost to repair your vehicle, you might have to ask yourself if it’s even worth it? If you carry a $500 deductible and the bumper on the front of your car will only cost $750 to repair after hitting the parking lot barrier, you must ask if you can afford to just pay out of pocket for that situation. You would only be using your insurance for $250 worth of damage in this situation since you would have to pay the $500 deductible for the insurance claim anyway, so you might consider forking over the extra $250 out of your pocket to just settle it on your own without going to the insurance company to open up a collision claim.