Are Statistics Really to Blame for Higher Auto Insurance Rates?

While most people don’t give them much thought, auto insurance companies use the data they gather from statistics to set your premiums. Fair or not, even if you have a good driving record, you fall into pre-assigned categories because of your age, income level, and the type of car you drive. Obviously, the goal of all insurance companies is to make an annual profit by charging more in premiums than they pay out in claims every year.

Motorists who are considered at high risk of having an accident, or those who drive vehicles that would be expensive to repair, typically pay higher premiums to compensate for the added risk the insurer is taking to cover them in the event of a claim.

As a guide to determine what rates to charge policyholders, insurers rely a great deal upon statistics, especially in cases where available data for specific drivers is lacking. As a result, that driver may be lumped into a blanket category from information compiled by insurance companies relating to his age, gender, amount of traffic in his city, number of miles he drives to and from work, among others.

By law, insurance companies are prohibited from discriminating against a driver based on ethnicity, race, or disability. But, gender and age do affect insurance rates…as does your credit score.

Because people with poor credit may not pay their premiums on time, and they’re often considered more likely to file claims than drivers with good credit, they pay higher rates. It’s not that people with poor credit will be involved in more accidents; it’s that they’re less likely to have sufficient income to pay for repairs. And, insurance companies recognize the statistical connection.

Being a teen driver places you in a specialized category; one that states drivers under 25 will pay much higher premiums than mature drivers. The reasons for this are:

• Young drivers lack the driving history to base premiums on; therefore, insurance companies rely almost entirely on statistics.
• Young drivers are less experienced, tend to take more chances, and text more often.
• 61 percent of all teenage passengers who are killed in automobile accidents are passengers in a vehicle driven by another teen.
• Teen drivers are considered at higher risk of driving under the influence; statistics show 25 percent of teen auto accident deaths involved alcohol.

The good news here is – once a teenage driver has proven himself safe after several years behind the wheel, his rates will go down. Driver’s education, a defensive driving course, and maintaining good grades are also smart ways to lower high premiums.

Young drivers aren’t the only ones to be penalized by their age. Mature drivers are thought to be safer drivers than their teen counterparts, but age also works against older drivers. Under the belief that the older you get, the higher a risk you are of having an accident, insurance companies will gauge your premiums accordingly.

Age demographics aren’t the only factor to haunt drivers. Where you live can greatly impact your insurance rates. As a result of statistics revealing more accidents occur in large cities and congested areas than in rural ones, insurance companies deem you more likely to have an accident in heavy traffic due to the increased number of drivers. In addition, if you reside in a city or town with a high level of auto theft, burglaries or vandalism, you will normally pay heavily for your choice of location to live in.

So, next time your premium renewal comes in the mail, be aware that it’s probably nothing personal…it’s just that your auto insurance company used statistical information as a basis for the rate they’ve charged you.

However, drivers can still save money on their auto insurance by maintaining a clean record, driving safely to avoid accidents, taking advantage of all available discounts, and comparing rates with different insurers.

Comparison shopping will allow you to make sure you’re getting the best rates on your auto insurance. Why not get a free auto insurance quote today?