Auto Insurance

Why Don't Car Insurance Companies Just Rate You Based on Your Driving Habits?

Do you ever wonder why insurance companies ask so many questions or what factors go into your car insurance quote? Find out here.

If you have gotten a car insurance quote before, you may have wondered why you were being asked what you did for a living, if you were married, your level of education and a series of other non-driving related factors. After all, you are getting car insurance, shouldn't they just care about how you drive? Car insurance companies determine how much they should charge someone based on a science called actuarial science, or the science of risk. Studies have shown that certain groups of people tend to be 'riskier' than others and cause more car accidents. For example, males tend to get into more accidents than females, young drivers cause more damage than older ones, even those in professional and skilled careers drive safer than those in less skilled positions.

How Do Non-Driving Factors Affect Your Auto Insurance Rates?

There are numerous things that will be affecting your car insurance rates you may have never realized. If you have a poor credit score for example, you are most likely paying more for car insurance than someone exactly like you, but with a good credit score. If you work in construction, as opposed to your neighbor who may be a dentist, there's a good chance you are paying more for car insurance as well. In a study we did in Chicago, we found neighborhoods that had more low-skill workers paid around 11% more than neighborhoods with a larger professional population. The same study also found neighborhoods with lower incomes paid around 16% more than those with higher incomes. The car you drive will also affect rates, with some cars being cheaper to insure than others. Insurers label some cars as being more prone to risky drivers, so even if you are not a risky driver, by virtue of having a certain car, your company deems you a risk.

Auto Insurance Companies and the Future

Auto insurance companies may actually begin to push away from the practice. The last few years have been rough for auto insurers, with most not able to make a profit on insurance revenue. An increase in the number of drivers on the road have led to more accidents, leading to more claims, and more money lost for insurance companies. Where they may go next to better rate drivers is to evaluate them on their driving habits, but in a much more invasive way than before. Car insurers are starting to implement more and more technology to measure how a driver drives. Do they break hard, do they drive fast, do they frequently go for drives at 2 in the morning? All of these risky behaviors will lead to higher rates. Programs such as the Progressive Snapshot and Allstate Drivewise have already begun to measure those things. The next step is for the technology to track which routes a driver takes, and charge them more if they take riskier routes.

What You Can Still Do to Save Money on Car Insurance

If you are a good driver, but still find your rates may be higher than they should, it is likely there is something about your profile that is driving your rates up. If you have a poor credit score, it is imperative you work on improving it as much as you can. Paying off any debts, and showing you can manage debt is a great way to do that. Other things such as the job you have are not very easy to change, but there are ways to still save money. The first and easiest to do is to shop around for car insurance. There are so many companies in any given area, and assuming your insurer is giving you the best price can lead to you overpaying. The next thing you can do is see if you qualify for any discounts. Car insurance companies, especially large ones, offer many discounts for drivers. If your child is a good student for example, and is on your policy, you can qualify for a good student discount. Finally, to reduce rates you can also consider reworking the limits on your policy. By talking to an insurance agent, or familiarising yourself with the different types of car insurance, you can see if you are paying too much for a certain coverage you do not need.

Mark Fitzpatrick

Mark is a Senior Research Analyst for ValuePenguin focusing primarily on the insurance industry, primarily auto insurance. He previously worked in financial risk management at State Street Corporation.

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