Auto Insurance Companies: What They Scrutinize Before Signing Off

Auto insurance companies check a variety of factors to determine insurance rates and eligibility. One of the most significant factors is an individual's driving record, which includes information such as traffic violations, accidents, license suspensions, and DUIs. Insurance companies typically look back at the previous three to five years of driving history, but this can vary depending on state laws and the company. Other factors that influence insurance rates include age, gender, location, credit history, vehicle type, and mileage. These factors are used to assess the risk associated with insuring an individual and set the premium accordingly.

Driving records

In most states, insurance companies will look back at the past three to five years of your driving history. They will check for accidents, speeding tickets, traffic violations, and DUI/DWI charges. These driving behaviours increase your risk as a driver, which leads to higher insurance rates.

Your driving record can include a variety of information, such as:

• Your name and address
• Driver's license number
• License status (valid, expired, suspended, etc.)
• Convictions related to motor vehicle violations
• Accident information
• Driver control actions, such as failure to yield or stop
• Suspensions and reinstatements
• Total demerit points
• Active fine suspensions
• Driving convictions

A clean driving record means having no violations or claims on your record. Maintaining a clean driving record can help you obtain better insurance rates and avoid surcharges.

Location

Auto insurance companies do check your location, as your address is a common factor in determining your insurance rates. The ZIP code where you live can affect your liability, collision, and comprehensive coverage rates. If you live in an area with high crime rates, heavy traffic, or a high population density, your insurance rates may be higher. This is because you are at a higher risk of filing an insurance claim.

Insurance companies may use different methods to verify your address, including checking your driver's license, vehicle registration, utility bills, lease or mortgage documents, or conducting database searches or third-party address verification services. Some companies also use advanced address software programs or tools like GarageConfirm, which uses towers and cameras in different areas to spot your vehicle and compare how often it is seen in your listed ZIP code versus other areas.

It is important to provide accurate and up-to-date address information to your insurance company. Providing false information or insuring your car at a different address to get lower rates is considered insurance fraud and can lead to severe penalties, policy cancellation, and legal consequences.

In addition to your residential address, insurance companies may also request your phone records during a claims investigation, especially if they suspect distracted driving or insurance fraud. They can obtain these records through a legal process, such as a court order or subpoena, or with your consent. However, you are not always required to provide your phone records unless there is a lawsuit involved.

Age and gender

When it comes to auto insurance, age and gender are two key factors that insurance companies consider when determining premiums.

Age

In general, younger drivers tend to pay more for car insurance than older, more experienced drivers. This is because younger drivers, particularly teenagers, are more likely to be involved in accidents due to their lack of experience. As a result, insurers typically charge higher rates if teenagers or young people below the age of 25 will be driving the insured vehicle. The high insurance rates for young drivers start to decrease at age 25 and continue to decrease until the driver reaches their 50s and early 60s, assuming they maintain a good driving record. At this age range, drivers are considered the safest and are, therefore, offered the best rates. However, as drivers age further and enter their late 60s, insurance rates begin to increase again. This is because older drivers are more likely to be injured or killed in a car crash, leading to higher insurance premiums.

Gender

In most states, gender also plays a role in determining auto insurance rates, with males typically paying more than females, especially during their teenage and young adult years. This is because, statistically, male drivers are more likely to get into accidents, receive traffic tickets, be arrested for driving under the influence (DUI), and be involved in fatal accidents. As a result, insurance companies consider male drivers to be higher-risk and charge them higher premiums. On the other hand, female drivers tend to get into fewer accidents, speed less, and have less serious accidents. Therefore, insuring female drivers poses less risk to insurance companies, resulting in lower premiums for women compared to their male counterparts. However, as drivers age and gain more experience, the gender gap in insurance rates narrows, and in some age groups, women may even pay slightly more than men.

It is important to note that the use of gender as a factor in setting insurance rates is not without controversy. Some states, including California, Hawaii, Massachusetts, Michigan, Montana, North Carolina, and Pennsylvania, have banned insurers from using gender as a factor in determining premiums. Additionally, there is a push for legislation in many states to include a third gender option on official documents, which may lead to further changes in insurance rating practices.

Vehicle type

When it comes to vehicle type, auto insurance companies consider a range of factors to determine insurance rates. Here are some key aspects related to vehicle type that insurers take into account:

Body Style and Vehicle Size

The body style of a car can influence its insurance rate. For example, coupes and four-door sedans tend to have higher insurance rates because they are associated with sports cars or are statistically more likely to be involved in accidents, respectively. On the other hand, vans and SUVs may be cheaper to insure as they are larger vehicles with lower accident rates and may sustain less damage in crashes.

Repair Costs and Parts Availability

Insurance rates also consider the average cost of repairing a vehicle. Cars with sports car-style bodies or luxury trim options often have higher insurance rates due to the higher cost of repairs. Additionally, vehicles with parts that are difficult to obtain or install, such as electric cars, may also be more expensive to insure.

Vehicle Make and Model

The make and model of a vehicle play a significant role in determining insurance rates. Repair or replacement costs are typically higher for newer or more equipped vehicles, resulting in higher insurance rates. Insurance companies ask for specific model details, such as the trim level, to provide accurate quotes.

Safety Ratings

The safety ratings of a vehicle are considered when setting insurance rates. Vehicles with higher safety ratings may be viewed as lower-risk, which can lead to more affordable insurance.

Theft Rates

Cars with high theft rates often have higher insurance premiums, especially for full coverage insurance, as comprehensive insurance covers auto theft.

Vehicle Use

Insurance companies also take into account how the vehicle will be used. Low-mileage drivers who spend less time on the road are generally considered lower-risk and may benefit from lower insurance rates.

Credit score

Historical data shows that drivers with poor credit file more claims, and these claims are more expensive for insurers. As a result, auto insurance companies consider individuals with lower credit scores to be "high-risk" and often charge higher premiums to compensate for potential claims. Ultimately, this is a way for insurance companies to lower their financial risk.

While credit scores impact auto insurance rates, the weight given to credit history varies across companies and states. Some states, such as California, Hawaii, Massachusetts, Michigan, and Oregon, have banned the use of credit scores in determining insurance rates. In other states, credit scores may not be the primary factor, but they are still considered in the decision-making process.

It's important to note that insurance companies conduct soft credit checks, which do not adversely affect an individual's credit score. Additionally, improving one's credit score can help secure more favourable insurance rates. Maintaining a good credit history, making timely payments, and keeping credit card balances low are some ways to enhance one's credit score.

Frequently asked questions