Insurance companies use different criteria to rate their auto insurance customers. The main criteria used are the following:
1, Credit Score. Credit score rating is used by certain preferred and standard companies. People with higher credit score will have lower premiums. Actually some companies may sharply increase premiums for auto and home polices with bad credit scores, or may even reject insuring them if the applicants, for example, were in bankruptcy in the past few years. Auto insurance companies believe that people with superior credit are more conscientious, hence they will be more conscientious too in their actions on the road and more conscientious in the reporting and the filing of their insurance claims, if any.
Scores of people think that credit score pricing is unmerited. The truth is that the entire insurance industry can be understood similar to the term-legally unfair. The insurance industry is an industry that does practice price discrimination based on the applicant's credit score, sex, marital status, and age. Discriminating against people and charging them different premiums because of their age, gender, marital status is completely legal in the insurance industry.
Many auto insurance carriers which are credit score oriented have shaped similar auto insurance plans to insure people with no credit check. To cope with the additional risk for not examining their credit scores, those companies did set a lower liability limits (close to the state minimum) as the maximum liability limits for any policy they issue without checking the credit and offered these policies with a little higher premiums on the average.
2. Demographics of the Target Market. Some demographic factors are more important than others in determining the price. This includes age, sex, marital status, ages of certain household, geographic location (ZIP), and occupation.
Young Operators - generally acknowledged as someone under age 25 years, and old drivers over 70 years; are charged more money than other operators. Males under age 25 also pay higher than females of similar age. Married people pay less also. Certain insurance companies may disallow certain classes of employments like bar tenders, musicians, performers, etc. The operator's driving record, prior insurance experience will also shape the price -people with accidents/ moving violations pay more. People in certain ZIP codes pay more than others because of bad claim history for insurance companies in those ZIP codes.
3. Premium Rating System: There are two broadly established premium rating methods: rating by Vehicle Symbol and rating by Actual Cash Value.
In the event that you are buying a new policy or changing an existing vehicle with a recently acquired car the result of the operation may be high or low premiums depending on insurance company's way of rating , the symbol of your car and the actual cash value of your vehicle
A Vehicle Symbol is a number assigned by the Insurance Service Office (ISO) to each vehicle. The symbol is determined based on certain factors such as loss experience for that particular vehicle, vehicle size/ weight, wheelbase, body construction, and horsepower. Vehicles with higher symbols have higher insurance premiums. Some companies that utilize their rating based on the Symbol of the vehicle will charge you more if the vehicle has higher Symbol, and less if vehicle has lower symbol. Notice here that a vehicle with a value (ACV) of $15,000 and symbol of 14 will have higher premiums than another vehicle with a symbol of 7 and a value (ACV) of $20,000.
Actual Cash Value method is dissimilar. The insurance premium is usually based on the Actual Cash Value of the automobile (ACV = automobile replacement minus depreciation) . The ACV of the automobile is based on the fair market worth of an average automobile of the same year, make & model sold in the area. When there is a total loss the insurance company will use that dollar value to pay for the claim, but may modify the amount of claim according to given facts like authentic mileage and the physical conditions of the automobile before the loss (automobiles that have double mileage as the average automobiles will have values smaller amount than the ACV.) So for two automobiles that have ACVs of $15,000 and $20,000 the insured will pay more for comprehensive & collision with the 2nd automobile, but liability premiums remain unchanged!
