Factors Influencing Auto Insurance Premiums: A Comprehensive Overview

Auto insurance premiums are calculated based on several factors, and understanding these factors can help drivers find ways to lower their insurance costs. While some factors are beyond a driver's control, others are influenced by choices and behaviours. Here are three key factors that affect auto insurance premiums:

1. Driving Record and Experience: A driver's history of moving traffic violations, accidents, and claims is a significant factor in determining insurance rates. Insurance companies typically review the past three to five years of a driver's record, and those with at-fault accidents or violations will likely pay higher premiums. Younger and less experienced drivers are also considered higher-risk and tend to have higher insurance rates due to their increased likelihood of being involved in crashes.

2. Location: Where a driver lives and parks their car overnight impacts insurance premiums. Urban areas with higher populations, higher rates of theft, vandalism, and accidents tend to have higher insurance rates. Additionally, state regulations and minimum insurance requirements differ, leading to variations in insurance costs across states. For example, Florida has the highest average insurance rates, while Vermont has the lowest.

3. Vehicle Type: The type of vehicle driven influences insurance rates. Luxury vehicles, sports cars, and newer cars with advanced technology and higher repair costs tend to be more expensive to insure. Insurance companies consider the average cost of claims for different vehicle types and evaluate factors such as repair costs, theft rates, and safety ratings when setting rates.

Age and driving experience

Statistically, drivers aged 16 to 19 are almost three times more likely to be involved in fatal car accidents per mile driven than any other age group. This data justifies the higher insurance rates for young drivers, which can be a financial burden for them and their families.

However, as drivers gain more experience and reach their early 20s, insurance premiums tend to decrease. By the age of 25, drivers may notice a significant reduction in their insurance costs, assuming they maintain a clean driving record. This trend continues throughout adulthood, with premiums generally decreasing as driving experience increases.

On the other hand, insurance rates may start to increase again for drivers in their 70s. Aging-related factors, such as vision or hearing loss and slower reaction times, can make senior drivers more prone to accidents. While their rates may rise, they are still likely to be lower than those of teenage drivers if they have a clean driving record.

It's worth noting that some states, like Hawaii and Massachusetts, do not allow age to be used as a rating factor in insurance premiums. Instead, they focus on years of driving experience, which can still result in higher premiums for younger drivers.

To summarize, age and driving experience play a crucial role in determining auto insurance premiums. Younger drivers are often considered higher-risk and face higher rates, while insurance costs tend to decrease with more experience and safer driving records. As drivers age and enter their senior years, insurance rates may increase again due to age-related factors affecting driving abilities.

Location

Auto insurance providers consider multiple factors when calculating your car insurance quote, and your location is a significant one. Your place of residence has a notable effect on your car insurance premium because insurance companies examine data that determines which areas' residents are most likely to file claims. This data falls into two categories: claims arising from auto accidents and claims resulting from vandalism or theft of your vehicle.

Insurance companies calculate your likelihood of an auto accident based on the county or state in which you live. On the other hand, they calculate your risk of vehicle theft or vandalism based on the city or neighbourhood in which you live. This is because auto accidents typically occur when your car is moving, while car theft and vandalism usually happen when your vehicle is parked.

Urban vs Rural

It is often said that you'll pay higher car insurance rates if you live in a city rather than a rural area. While this is not a hard-and-fast rule, it is true that several of the states with the lowest average auto insurance rates – Vermont, South Carolina and Maine – are predominantly rural with few large urban areas.

In urban areas, there are more drivers on the road, increasing the likelihood of collisions. There are also higher rates of vandalism and theft in large cities. Vehicles often don't have covered or protected parking in cities, leaving them more vulnerable to damage. All these factors contribute to higher insurance costs in urban areas.

Weather

Harsh weather conditions such as heavy rain, hail or snow can lead to a higher chance of accidents. If you live in an area prone to flooding, the potential payout that a car insurance company would have to make to multiple policyholders can increase your premium to offset costs.

In Oklahoma, for example, frequent hail storms can leave vehicles full of dents, resulting in higher auto insurance rates as many vehicle owners rely on their insurance to cover the damage. Similarly, states that experience hurricanes or heavy snow, such as Louisiana, will typically have higher car insurance rates.

Crime

If you live in a city or neighbourhood with frequent incidents of vandalism or theft, your car insurance company will likely take that into account when calculating your rate. Grand theft auto and vandalism raise insurance claims and rates.

Unemployment

In areas with high unemployment, it is not uncommon for people to forgo car insurance due to budget constraints. As a result, other policyholders in the same area wind up paying higher rates to compensate.

Road Conditions

Poorly maintained roads or dangerous intersections can increase the odds of accidents happening, which results in higher car insurance costs.

Vehicle type

The vehicle type is a significant factor in determining auto insurance premiums. Insurance companies consider the average cost of claims for different types of vehicles when setting rates. While luxury vehicles with advanced safety features may seem like a safer option, they are more expensive to repair or replace, resulting in higher insurance costs.

The make and model of a vehicle play a crucial role in insurance premiums. Certain vehicles are statistically more likely to be stolen, such as the Honda Accord and Ford pickup trucks, making them more expensive to insure. Additionally, vehicles with high safety ratings may be eligible for insurance discounts.

The age of a vehicle is another factor. Generally, newer and more expensive vehicles will have higher insurance premiums than older base models with more mileage. Sports cars, for instance, are considered higher risk due to their association with racing and will therefore be more expensive to insure than minivans.

The brand of the vehicle also matters. According to Quadrant Information Services, Dodge has the highest average car insurance costs, while Mazda has the lowest.

The ease of repairing a vehicle also impacts insurance premiums. Cars that require specialised tools or mechanics with specific qualifications, such as BMWs, tend to be more expensive to insure than cars that are easier to fix, like Hondas and Toyotas.

When it comes to electric vehicles, their components can be harder to find, and mechanics may not be qualified to fix them, resulting in higher insurance rates.

Driving record

A driving record is a report card for drivers, with each incident and violation affecting insurance premiums. A driver's record is stored with the Department of Motor Vehicles (DMV) and includes personal identification, license information, and any citations, violations, or convictions. A bad driving record can have serious consequences, from higher insurance premiums to a negative impact on career prospects.

Insurance companies typically review an individual's driving record when they apply for a new policy, but not when an existing policy is renewed. Minor violations may go unnoticed by insurance companies, but major violations will likely be detected, especially if they result in damage and an insurance claim. A minor violation, such as speeding, can increase insurance premiums by 10 to 26%. More serious violations, such as reckless driving or driving under the influence (DUI), can result in even higher premium increases, ranging from 30% to 300%. A DUI or reckless driving charge can also lead to a driver being labelled as high-risk, which may cause insurance companies to refuse to insure them or renew their policy.

The impact of a driving record on insurance premiums can vary depending on the company and their assessment criteria. Some insurance companies review an individual's driving record for the past three years when they apply for coverage, while others may look back as far as seven to ten years. Additionally, insurance companies may consider the severity of the violation, the number of points accumulated, and the state in which the violation occurred, as different states have different point systems and thresholds for suspending licenses. For example, in California, a license will be suspended for four points in a year, while in New York, the threshold is 11 points within 18 months.

To maintain lower insurance premiums, it is essential to keep a clean driving record. This means driving safely, obeying traffic laws, and avoiding any violations. Minor violations may be removed from a driving record by taking a defensive driving course, and in some states, it may be possible to request the expungement of certain violations after a specified period. A good driving record is an essential factor in keeping insurance costs down and maintaining road safety.

Insurance history

The nature and details of the claim also matter. For example, an at-fault accident or multiple collisions will increase premiums. The cost of the claim, the driver's fault, and their driving record will influence the premium increase. The time elapsed since the last claim is also considered, with improved driving behaviour over time resulting in lower premiums.

Insurance companies also take into account the time passed since the last claim. The longer the time period since the last claim, the lower the premium will be. Additionally, the number of claims made affects the premium. The more claims made, the higher the premium will be.

Insurance companies also consider the cost of claims when determining premiums. If a driver has made expensive claims in the past, the insurance company will view them as a potentially costly customer and charge a higher premium.

The impact of a claim on premiums can last for several years. Most claims will remain on a driving record for three years, affecting insurance rates during that time. However, the impact of a claim may lessen over time, with older claims having less influence on premiums.

In summary, insurance history plays a crucial role in determining auto insurance premiums. Insurance companies assess a driver's claims history, the nature and details of the claims, the cost of the claims, and the time elapsed since the last claim to evaluate the driver's risk and set the premium amount.

Frequently asked questions