How Auto Insurance Companies Calculate Risk

No other industry invests more time into risk than the auto insurance industry.

Before receiving a quote on an insurance premium, every car insurance client is weighed by his or her risk factor. The determining factors are many, some of which have little or no correlation to actual driving.

 

How Do Auto Insurance Companies Calculate Risk?

Car insurance companies invest millions of dollars annually in determining risk assessment. This involves studying thousands of statistics in the intent of determining a pattern for identifying high risk drivers.

Fortunately, for your sake, many of these risks are within your control, giving you a say in how much you pay for car insurance coverage.

These risk factors include:

• Your credit rating. The lower your credit rating, the higher your car insurance. Many years of study have proved that drivers with low credit scores tend to be high risk drivers.

• Your age. The younger you are, the higher the rates. Statistics prove that until you reach the age of 25, you're in a high risk category.

• Your occupation. If you work from home, for instance, you're more likely to qualify for an insurance rate discount under the simple premise you drive fewer annual miles, making you less likely to be involved in a car accident.

• Your place of residence. Rates are higher for city residents. More people means more accidents, more theft, and more vandalism.

• Your driving record. If you maintain a spotless driving record, you'll enjoy lower rates. Conversely, if your driving history is pocked with speeding tickets and fender-benders, you can expect steeper premiums.

• Paying your insurance payments on time. This conveys that you're a responsible person, which in the auto insurance world means you're low risk.

• Your marriage status. Married drivers are considered low risk. With family members in the car, married drivers tend to be less prone to taking chances.

• Your type of car. Fancier cars equate into higher insurance rates. However, you can expect lower premiums for a vehicle equipped with safety features like airbags, automatic seat belts and anti-lock brakes.

• Your sex. Male drivers are viewed as riskier drivers than females.