Why Do Different Companies Offer Better Rates For The Same Driver?

Why do different companies offer better rates for the same driver? Automobile insurance rates are established by various formulas that vary from state to state and from company to company. In some states, such as California, insurance companies are allowed to set their own rates for consumers only after they have been ap.

"Purchasing car insurance can be a bewildering exercise for most consumers," says Clark Jackson, President and CEO of Jackson and Jackson Insurance Agents and Brokers in Glendora, California. "Whether you're trolling for the best rates via the Internet or talking with an agent on the phone, it often seems that no two parties will give you exactly the same quote. Nor is your quote likely to match a peer who's the same age, drives the same kind of vehicle or who even lives next door."


According to Jackson, here's what you need to know to understand how rate-setting works.




"Automobile insurance rates are established by various formulas that vary from state to state and from company to company. In some states, such as California, insurance companies are allowed to set their own rates for consumers only after they have been approved by the State Department of Insurance. In other states, insurers are given wider latitude to set what they think is a reasonable and yet competitive cost."

Insurance companies use a number of different criteria that relate to the statistical probability that you may be involved in an accident. These criteria include the number of miles that you drive annually, the number of years that you have been driving, and a review of your actual driving record. Other factors include the age of the driver, the primary location where the vehicle will be kept, the type of vehicle, and even the driver's martial status. In some states, your credit score may also affect what you pay for insurance." Are you a smoker? Jackson points out that your pack of cigarettes will be factored into the equation, too.

"Like any enterprise," he continues, "insurance companies have to compete for your business in order to stay in business themselves. That is why they all look at the various criteria differently when setting rates for prospective buyers. In addition, some insurance companies use agents or brokers while others solicit consumer applications directly, either on the phone or through the Internet. Agents and brokers are paid a commission for their services. While these commissions may increase the overall cost of your insurance, it also provides you with advice, cost comparisons and other services that you may find valuable as an insurance consumer."

This one-on-one attention is especially useful in the case of single insurers who are looking to safeguard more than just their spiffy new roadster from damage or loss. "Let's say," Jackson illustrates, "that you have a number of insurance needs, including homeowner's or renter's insurance or umbrella (excess) coverage to protect your personal assets. Insurance companies that offer many different insurance products will often offer a multi-policy discount which may lower your overall insurance costs. In addition, working directly with a broker or an assigned agent provides a level of comfort as questions arise, accidents occur and, of course, as you sell or trade in your older vehicles for new ones."

Cost is an important consideration when buying automobile insurance. Companies that want your business will have sophisticated rating plans that, in their view, present the best cost for the risk you present as a prospective insured. What that cost is depends on what criteria the insurer considers most important based on the experience it has already had with insuring other drivers in your state. Interestingly, even a short neighborhood move from one street to another can increase or decrease what you pay if the new address just happens to be in a different zip code.

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