3.
Why and how are policies priced for different drivers?
Drivers are grouped according to the level
of risk each one poses—i.e., the amount of loss incurred by
insurers within categories of policyholders. For various
reasons, where permitted by law, drivers are often
categorized by:
•Gender—Men
have more accidents on the road than women.
• Age—Drivers
under 25 (and, for some insurers, under 30) are considered
at higher risk of having an accident.
• Marital Status—Married
drivers tend to have fewer accidents than single drivers.
• Personal Driving Record—Years
of driving experience, accidents, speeding tickets and
drunk-driving offenses are all factors in determining how
much of a risk you pose as a motorist.
• How You Use Your Vehicle—If
you commute by car during rush hours, you're at greater risk
of having an accident than if you only drive for errands and
recreation on the weekends. Drivers who use their own
vehicles for business also are considered to be at greater
risk.
•
Type of Vehicle—The
value, size, weight, age of your vehicle, even the cost of
replacement parts, are essential to determining the price of
your auto insurance. The cost of your insurance policy is largely
based on the average cost of covering actual losses, spread
out over your particular "rating group" as a whole. Of
course, you may rarely have an accident or have your car
stolen, and therefore will rarely need to be compensated.
But others in your category may not be so lucky. Your
premium will help to pay for their losses, just as their
premiums would help to pay for yours.
For example, if you are a 23-year-old man
and you park your new sports car on a downtown street in a
large city, you will likely pay more for insurance than a
37-year-old woman who parks her four-wheel-drive in the
suburbs, simply because, based on average losses, you have a
greater chance of having an accident or being the victim of
auto theft.
