You recently decided to make a big upgrade in the type of car you drive, going from a 2011 Chevy Malibu to a 2016 Nissan Altima. Maybe not a giant upgrade, but the newer model and lower mileage are great. But now, you find out that your auto insurance rates are going up. Why does this always happen?
As you’ve probably found out yourself one time or another, the year, make, and model of your car can have a big impact on your auto insurance rates.
The reason for this has to do with how insurance companies determine rates. There are many factors that go into setting rates, such as your age, location, driving history, etc. The type of vehicle you drive also plays a part.
Type of Vehicle Factors
Some of the same factors that go into determining a location’s rate also are used for the rates for vehicle types. Insurance companies look at specific areas to see how many accidents, thefts, crimes, and which type of vehicle is was involved to determine their location rates. They also look at how much money was paid out claims. They’ll use this information to help set their location rates based on ZIP Codes.
Similarly, insurance companies look at local, statewide, and national vehicle data to determine which vehicles get into the most accidents, which vehicles are stolen the most, how much money they cost to repair or replace, and where these accidents and claims are happening.
For example, pickup trucks, statistically are 3x more likely to get into a rollover crash than other types of vehicles. And while more recent pick-up truck models have greatly improved their safety features, many are still trailing behind cars in safety ratings.
They are also oftentimes more expensive to repair or replace than a sedan. The insurance company will look at the statistics and determine that a person driving a newer addition pickup truck is much more likely to have an expensive claim than somebody driving a car, so their rates will reflect the higher increased probability of a claim.
The Riskiest Vehicles
The most stolen vehicles in the US are usually the most popular and widely used. Ford F150s, Chevy Silverados, Toyota Camrys, Nissan Altimas, GMC Sierras, etc. These vehicles are widely available and have high resale values for their parts on the black market, so they offer attractive targets for thieves.
However, the cars that get into the most accidents make up an entirely different list. These are usually more expensive and luxury models, such as the BMW 4 Series, the BMW X1 Crossover, Land Rovers, Audis, and Jaguars.
While these national statistics do influence your auto insurance rates, a lot of this is location-based as well.
This means that if you live in a city with high rates of theft for one of these vehicles, you likely will be paying for it through higher premiums. But if you live in a state with few auto thefts, even owning a brand-new Nissan Altima (the most stolen new vehicle) will probably not influence your rates much.
Insurance Rates & Actuarial Science
Insurance companies look at the statistics to help them set their standards, rates, financial planning, no matter whether it’s for auto insurance, home insurance, life insurance, or business insurance.
This process is called actuarial science and is a key part of the insurance industry. Insurance companies employ actuaries to look at these statistics and come up with models that can predict future claims.
If you think about it, it makes sense. It’s actually one of the only ways that insurance companies can actually operate and hope to make a profit in any given year.
The whole concept of insurance revolves around protecting things and people from unexpected events and accidents. However, unexpected events accidents do happen, and they happen with a certain level of frequency.
So, insurance companies study these unexpected events and accidents to determine what the average frequency of these events are. They know that in one single year, anything could happen: the number of unexpected events and accidents could be a lot higher in one year, or it could be a lot lower than the average.
However, the averages over time are fairly stable. They use all this information to help set their insurance rates and do their financial planning as a company.
This principle applies to insurance in general, but also more specifically to auto insurance. It also helps explain why the type of vehicle you drive affects your rates.
With today’s technological and computing capabilities, insurance companies can be extremely exact in their rating factors. These capabilities allow insurance companies to have data and rates for every single type of vehicle.
The next time you’re shopping for a new or used car, keep in mind that the year, make, and model of it will impact your insurance rates. If it’s a frequently stolen vehicle or is involved in many accidents, the insurance company factors this into the vehicle’s rates.