Orlando Harmon
Auto insurance companies use various methods to gather information about their customers' vehicles. This includes tracking devices, which are either plugged into the car's onboard diagnostics or downloaded as a smartphone app, as well as reports such as driving records, credit scores, and Comprehensive Loss Underwriting Exchange (CLUE) reports. Additionally, insurance companies may refer to auto insurance codes, which are based on vehicle type and driving record, to set rates. These codes are listed on the insurance card provided to policyholders and vary by state. By collecting and analyzing this data, insurance companies can assess risk, determine premiums, and set appropriate rates for their customers.
| Characteristics | Values |
|---|---|
| Vehicle type | The type of vehicle (car or truck) is identified by a vehicle insurance code |
| Vehicle value | The value of a vehicle dictates how much it costs to replace each part |
| Vehicle construction | A metal or steel-constructed car is more likely to sustain less damage than a fibreglass car in a collision |
| Vehicle age | Newer cars often carry higher repair and replacement costs than older cars |
| Vehicle technology | A car that uses modern computer technology is likely to be assigned a higher insurance code than a car that runs on older mechanical systems |
| Vehicle safety features | Anti-theft devices, such as alarms or customised locking systems, can help reduce the likelihood of a high-value car being stolen |
| Vehicle location | The location of a vehicle can affect auto code ratings, with policyholders in affluent neighbourhoods likely to have a lower code rating than those in less affluent areas |
| Driving record | A person's driving record is the main factor affecting insurance rates |
| Driving behaviour | Insurance companies use tracking devices to monitor driving behaviour, including speed, acceleration, braking, distance driven, time of day, phone usage while driving, etc. |
| Credit score | Drivers with low credit scores tend to have higher insurance premiums |
| Age | Younger drivers tend to pay more than older drivers |
| Gender | Men tend to pay more than women |
What You'll Learn
- Auto insurance companies use vehicle codes to determine rates based on the type of car and driving record
- Companies use the same reports to gather information about you
- They access information about insured vehicles and drivers
- They can access your claims history through a database called CLUE
- They determine rates by looking at your driving record, claims history and credit score
Auto insurance companies use vehicle codes to determine rates based on the type of car and driving record
Auto insurance companies use vehicle codes, also known as covered auto designation symbols, to determine rates based on the type of car and the policyholder's driving record. These codes typically range from one to 27, with lower-numbered codes assigned to cheaper auto insurance rates and higher-numbered codes assigned to more expensive rates. The type of car a person drives can have a significant impact on the amount paid for auto insurance coverage. For example, a high-end car, such as a sports car, is more likely to be stolen or vandalised than an older, less desirable vehicle. Insuring high-end cars means that a company takes on a greater risk of having to pay for replacement or repairs.
Additionally, the construction of a car can affect its assigned code. For instance, a car with a metal exterior is likely to sustain less damage in a collision than a car with a fibreglass exterior. Newer cars with modern technology may also have higher repair and replacement costs, resulting in higher insurance codes.
When determining insurance rates, a person's driving record is typically the main factor, but the type of car insured can introduce a whole new set of risk factors that insurance companies must consider. Policyholders can take steps to lower their insurance code rating, such as installing safety features or improving their driving record.
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Companies use the same reports to gather information about you
Auto insurance companies don't share information with each other, but they do access your information from the same sources. This means that they will all have the same information about you.
When you request a quote, you provide your age, vehicle details, and ZIP code. While these factors do determine your rates, they are not the only ones. Your driving record, claims history, and credit score can also affect your car insurance rates.
Your driving record, or motor vehicle report (MVR), details any accidents, tickets, or DUIs on your record. Although most states only include infractions for three years, some states keep records for 10 years. Your MVR shows what kind of driver you are and whether you are likely to cost the insurance company money in the future. Risky drivers have much higher rates, and drivers with multiple infractions will see their rates skyrocket.
Your Comprehensive Loss Underwriting Exchange (CLUE) report shows all claims filed, whether accident-related or not. So, for example, if hail damages your car and you file a claim, it would show up on your CLUE report but not your MVR. The CLUE report indicates whether you're likely to make a claim, based on the number of claims filed in the past.
Finally, insurance companies look at your credit report. Various factors determine your credit score, such as on-time payments, how many accounts are open, and what credit types you have. Studies show that drivers with a higher credit score are more likely to pay for damages out of pocket and avoid filing a claim. Therefore, insurance companies save money and can offer lower rates. A credit report also shows if you're likely to pay your bill on time.
In addition to these reports, auto insurance companies may also use tracking devices or apps to monitor your driving behaviour and set rates that accurately reflect your level of risk. These programs are optional and are known as usage-based insurance (UBI) programs.
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They access information about insured vehicles and drivers
Auto insurance companies have access to a lot of information about insured vehicles and their drivers. This includes the type of car or truck insured, the vehicle's value, the location of the insured vehicle, and the driver's age, gender, driving history, credit score, and location. They also have access to databases with information on accident history, claims records, and policy details.
Insurance companies use this information to assess risk and set premiums accordingly. For example, a high-end car is more likely to be stolen or vandalised, so insuring it would mean the company takes on a greater risk of having to pay for replacement or repair costs. Similarly, younger drivers tend to have higher premiums because they lack experience behind the wheel and are more likely to be in accidents.
In addition to the information insurance companies collect from customers, they also pull data from third-party sources, such as driving records, credit reports, and Comprehensive Loss Underwriting Exchange (CLUE) reports, which show all claims filed. This allows insurance companies to see how likely a driver is to file a claim and assess their overall risk profile.
By combining the information they collect and that which they access, insurance companies can more accurately determine premiums and set appropriate coverage limits. This helps ensure that drivers are adequately insured while also minimising the company's financial risk.
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They can access your claims history through a database called CLUE
Auto insurance companies can access your claims history through a database called CLUE (Comprehensive Loss Underwriting Exchange), which is managed by LexisNexis. CLUE is a claims-information report that collects and reports up to seven years of personal auto and property claims history. This includes information on the amount paid out by the insurance company, a description of the covered property, and specific vehicle information for auto claims.
When an insurance company starts, denies, or pays out a claim, they will submit a CLUE report. This report helps insurance companies decide whether to offer coverage and determine the cost of premiums. A history of claims indicates a higher likelihood of future claims. Therefore, access to CLUE reports allows insurance companies to assess risk and make informed pricing and underwriting decisions.
As a consumer, you can request a copy of your CLUE report to check for any inaccurate or unrelated information that could result in higher premiums. You are entitled to one free report every 12 months. If you find any mistakes, you can dispute the content with LexisNexis, who will verify the information with the reporting insurance company. You can also add explanations to the report that will be visible on all future reports.
By utilizing the CLUE database, auto insurance companies can access valuable information about your claims history, enabling them to make informed decisions about your coverage and premiums. This helps them manage their risk and ensure fair pricing for their customers.
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They determine rates by looking at your driving record, claims history and credit score
Auto insurance companies determine rates by looking at your driving record, claims history, and credit score.
Driving Record
Insurance companies check your driving record when you apply for a new policy and at renewal. They look back at your record over the previous three to five years for violations and accidents. They will check for a history of speeding tickets, at-fault accidents, and DUIs. If your record shows any of these, your insurer will likely charge you a higher rate.
Claims History
Your claims history is one of the factors auto insurance companies use to determine whether to offer you coverage and how much to charge. Insurance claims typically cause your premium to increase, especially if it's an at-fault claim. If you have a significant number of claims in your history, an insurer could view you as a high-risk driver and charge you a higher premium.
Credit Score
In most states, your credit score can impact your car insurance rates. Research shows that individuals with better credit history are less likely to file a claim, so insurance companies reward these customers with lower rates. Drivers with poor credit are more likely to file a claim, so insurers compensate by charging more. Insurance companies use a credit-based insurance score, which includes factors such as outstanding debt, credit history length, credit mix, and payment history.
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Frequently asked questions
Auto insurance companies determine the cost of your policy based on several factors, including your age, vehicle type, location, driving record, claims history, and credit score. They use these factors to assess the risk of insuring you and set your premium accordingly.
Yes, auto insurance companies can track your driving behaviour through telematics programs or tracking devices. These devices are either plugged into your car's onboard diagnostics or downloaded as a smartphone app. They monitor various factors, including speed, acceleration, braking, distance driven, time of day, and phone usage while driving. This information is then used to adjust your premium or offer discounts.
There are several ways to lower your auto insurance rates:
- Improve your driving record by obeying traffic laws and avoiding accidents or violations.
- Avoid filing claims if you can afford to pay for minor repairs yourself, as this can keep your claims history clean and reduce the risk of higher rates.
- Improve your credit score by making timely payments and using credit wisely.
- Compare quotes from multiple insurance companies to find the best rates and switch if necessary.
