Why Is Car Insurance So Expensive?

Car insurance is expensive.....no doubt about it! But what makes it cost so much and what can you do about it? In this hub I'll show you some helpful tips on what goes into the pricing of car insurance and how to keep your cost down.

Here's a little information about what goes into the pricing of auto insurance.

1) The Use of a Vehicle - The use of the vehicle is one rating factor that is considered in pricing an auto policy. The difference between a car that is driven 1 mile to work compared to a car that is used for business use is one example. Normally a car that is driven 1 mile to work will have a lesser exposure, and a lesser rating factor, than a car that's used for business and on the road all day long. You'll find that vehicle usage is normally broken down into one of these catagories'; pleasure use; to work less than 3 miles; to work less than 10 miles; to work over 10 miles and business use. Each of these different classes carries a different weighted rating factor that is used to compute the car insurance premium

2) Vehicle Model Year and Type - The model year and type will have a direct effect on the cost of physical damage insurance on the car itself. Physical damage for your vehicle is made up of collision coverage and damage to your auto other than collision. In simple terms collision coverage will pay for damage that you sustain to your car from a collision, running into something or something running into you! While damage to your auto other than collision will pay for just about anything else that happens outside of wear and tear and maintenance issues. So why are these separated? Each of these coverage sections are rated independently and most insurance carriers will offer a variety of deductibles from which consumers can choose. Physical damage coverage on newer more expensive vehicles will cost more than older less expensive cars. Not too difficult!

3) The Driver - Age and experience of the driver play an important role in the cost of car insurance. A "youthful" operator will cost more than a "mature" operator. The reasoning being that a youthful operator has not gained the experience to handle hazardous driving circumstances thus creating a greater chance there will be an increase in claim activity and severity.

4) Credit Scores - Credit scoring, it seems, has taken over as the most important factor in the car insurance pricing structure. As in so many areas of our lives today your credit score means a great deal when it comes to pricing your auto insurance. Insurance carriers have fine tuned the impact credit has on the pricing of auto insurance. Many insurance companies now base their auto insurance premiums on "tiered pricing levels" dictated by each individual applicants credit score and utilize as many as 20 different pricing tiers. Remember, each insurance company deals with credit scoring in different ways, but do not underestimate this hidden pricing factor because it will make a big impact on your premium!

5) Claim Experience - Claims impact the acceptability and pricing of your car insurance. Let's just get to the bottom of it....when it comes to claims it's really about how much money has been paid out. Forget about who's at fault. Pay attention to the $ dollars $! Again, a simple concept, those who have no claims pay less in insurance. Those with many claims pay more.

Well..... it's really all about money in and money out. When an insurance company reviews their book of auto insurance clients they are looking for a few things;

1) Are we making any money - Are the claims being paid out by the insurance company greater than the money they are bringing in? Pretty simple, right? Well maybe it's not quite that simple but for this hub, I'm going to lay off the unique accounting system that all Insurance companies use and save that for another time.

2) What areas of our auto insurance program can we improve - That's code for where can we make more money?

3) Market share - They want to know how they stand in the market place. Are there small changes that can be made to improve their standing in the market place? Can they add product lines to attract more business?

All of these processes go into an insurance company's review of their business. From this information they will make decisions as to whether to increase rates overall, increase only segment rates by classes of business, adjust rating tiers to better reflect claims activity, back out of certain territories or forge into new areas and provide their products to a new client base.

So what makes car insurance expensive? A lot of things! From those individual rate factors we went through above like who's driving, what kind of car their using and their credit score to the decisions an insurance company makes about how they need to price their product.

In the next section I'm going to give you a check list you can use to make sure you're getting the best price for your car insurance.

Use this short list to make sure you're doing everything you can to keep your car insurance premium down.

1. ____Are the ages of your household drivers correct?
2. ____Are the drivers in your household assigned to the cars they drive?
3. ____Are the vehicles on your policy correct?
4. ____Use of the vehicles correct?
5. ____Is your credit score being properly applied?
6. ____Can you do anything to improve your credit score?
7. ____Are you being charged for unknown claims?
8. ____Are you receiving all the discounts that you qualify for such as multi car, multi policy (where you insure your auto and home,) good driver, mature, good student, etc?
9. ____Reviewed additional coverage included in your policy?
10. ____Reviewed your policy with your agent?

Make sure you review your auto insurance policy once a year with your agent and remember buying insurance is about protecting your assets. When it comes to protecting your financial future make sure you have adequate insurance limits to do the job!