How Car Insurance Rates Are Calculated

One simple way that you can receive painless savings is to compare your auto insurance on a yearly basis. This gives you savings due to competition in the market place, but you can also create more savings by understanding how auto insurance companies view risks and what standards they use to make their calculations. If you have this information, then you can make adjustments that favor you in their calculations to lower your auto insurance bill more.

California has passed a new law on how auto insurance rates need to be calculated. While obviously this doesn’t apply to everyone in the country, what it does do is give a glimpse of what factors are important in relation to what you’re paying for car insurance. According to the Association of California Insurance Companies, auto insurance companies will now have to give more weight to the top three factors below when making their insurance calculations. This is a major change because “territory / zip-code” (where you live) was the primary factor in calculation your auto insurance rates before the law change:

1. Driving record
2. Number of miles driven
3. Years of driving experience

  • Type of vehicle
  • Vehicle performance (includes alternations to auto such as souped-up models)
  • Vehicle use (commute or pleasure)
  • Who drives the car how much of the time
  • Multiple autos insured with same company
  • Grades (for student drivers)
  • Attended drivers training course or not
  • Auto characteristics (engine size and safety products it has)
  • Gender of driver
  • Marital status
  • Longevity – How long you have been with the insurance company
  • Smoker / non-smoker
  • Who may drive (drivers who are not the primary driver but may use the car from time to time)
  • Multiple insurance policies with same company (home, auto, etc)
  • Territory or zip-code frequency (number of claims there)
  • Territory or zip-code severity (amount of claims there)

    By looking at these, you can see some of the issues that affect your auto insurance and while many you won’t be able to change (especially right away), there are a few that you can work toward to hopefully get lower auto rates. There are also a number of other discounts that you should always ask your auto insurer about which you might qualify for (List at bottom of the page) since these may lower your insurance rates even more.

    What I find interesting (and quite surprising) is that “credit score” has been left off of the California list which is a tool that has become more and more prominent when calculating all insurance rates in general including auto insurance.

  • This entry was posted in Cars, Insurance. Bookmark the permalink.

    5 Responses to How Car Insurance Rates Are Calculated

    1. Sky says:

      I was recently in the position of changing my insurance, and wish I could have used the new law for my rates. I had been with 21st Century insurance for 5 years. For 3 of those years I lived in San Mateo, California where my premium was about $350 for 6 months. After I moved back to San Francisco my premium with 21st would have gone to $480 for 6 months. So I shopped around a bit and got my premium down to $280 for 6 months with Geico. One reason I believe Geico was able to give me a better deal is because of the questions they ask within their quoting system on their website. Questions that Geico did ask and 21st did not were whether I carpool or not and then how many days per week I drive to work. Geico also suggested because my car is older, 1993 Camry that I waive the collision and comprehensive. 21st did not have this option.

    2. Pingback:

    3. J.B. Jackson says:

      Recently I purchased a condo in a older neighborhood.I had been a renter for years and saw an opportunity to purchase a home due to the low inerest rates.I have had the same insurance company for many years, paid and enjoyed low rates. I am over fifty with an excelent driving record.Recently I notified my insurane company of the change in address.The first thing I was asked was what is your zip code? You would not believe the rates I was quoted!! I was almost floored. I was told that the reason my rates went up was due to the area I lived in.(Texas) Has anyone ever experienced this before? Since when does someone else’s drving record reflect how much you pay? Is this fair?

    4. pfadvice says:

      Unfortunately, it’s very common. As mentioned here, the law was recently changed in CA because a lot of people didn’t think it was fair, but it is still common practice across the US.

    Leave a Reply

    Your email address will not be published. Required fields are marked *