January 26, 2010

Why Do Auto Insurance Premiums Change So Often

Motorists that check online for a new auto insurance quote every few months may be shocked to see the vast difference in premiums that tend to occur, especially when the economy is fluctuating. It can seem as though auto insurance premiums are decided haphazardly; after all, even if you don’t change your policy from company to company, you’re likely to see changing premiums. However, the methods that car insurers use to decide rates are far from random and are based on logic. Understanding their methods can make it much easier to find a great auto insurance premium and avoid the occasional rate hike when an insurer tries to sneak one in.

As you might expect, car insurance companies rely heavily on statistics to estimate the probability of insurance claims. The more accurately that they’re able to predict whether a certain individual will make a claim, the more money they’re able to make, since they can choose to refuse dangerous drivers coverage or raise their rates to compensate for their possible losses. The thing is, statistics change regularly, especially the statistics that the insurance companies use. They might look at the likelihood of car theft in a driver’s town, for instance. Car theft costs insurance companies make a lot of money since each claim results in a full payout, so anything that an insurer can do to predict this costly type of claim results in a huge advantage. They’ll look at crime statistics for a driver’s neighborhood, and car insurance premiums will go up if the rate of auto theft increases. Likewise, if a certain age group begins driving more dangerously, their premiums will most likely rise.

The actions of an individual driver are important, too. Each claim results in a higher premium, since there’s a higher probability of a second accident after a first accident occurs. In troubled economies, the actual financial resources of the insurer come into play. Insurance companies must back up insurance policies, and if their parent companies aren’t worth a whole a lot of money, then they don’t have many resources to use when backing up new policies. To compensate, they’ll raise the cost of auto insurance rates. However, if capital isn’t an issue, troubled economies might actually spur lower insurance rates since insurance companies must deal with increased competition to get new drivers to sign up for policies.

In order to control the cost of your car insurance premiums, you should check over your policy every few months and compare it to the ones on other car insurance websites in order to ensure that you are paying fair rates. You may also ask your insurer for any additional tips.