Car insurance agencies can charge any price they want. Right?

Tuesday, July 31, 2012

There's a myth circulating the web saying "insurance companies can charge whatever they want!" It's any easy thing to believe for anyone not familiar with the insurance space and laws. Barriers to entry in the insurance market are extremely high and there are only a select handful of major players in the industry. Add these two elements together with a few other variables and I can see why people would believe car insurance agencies can charge whatever they want. The truth is, insurance agencies are not omnipotent. Like many other institutions they have to answer to someone who regulates their market. In the case of insurance the Department of Insurance requires that all agencies report how they calculate their premiums. States have set up regulations to help consumers get "fair" prices and feel confident in their purchasing experience. Below you'll find an infographic that depicts how car insurance agencies actually calculate their rates. Now the calculations may vary agency to agency, but in the grand scheme of things this is a good glimpse into how rates are actually formulated. We've taken the time to write a quick summary of the 5 best things you'll learn from the infographic below:
  1. Insurance agencies cannot charge whatever they want. Your credit rating, occupation, gender, driving history, location, car, and age are all things taken into account when agencies calculate your premium.
  2. If you've never wished for a daughter the time might be now. Statistically, 16-year-old males pay, on average, $2500/year. They are 6 times more likely to get into an accident, and 1-2 accidents can more than double their policy rates.
  3. Pay your bills on time. Insurance companies can actually charge individuals, with poor credit ratings, 20-50% more than those with good credit. Believe it or not insurance agencies have an "insurance score" similar to your credit rating or FICO score. This goes to show how advanced insurance agencies have become over the years.
  4. Choose your occupation wisely. Statistics show that doctors, lawyers, real estate agents, and business owners are more likely to pay higher insurance premiums. On the other side scientists, pilots, actors, and artists are more likely to pay less for their insurance.
  5. Your state can make you pay. California and Texas have been statistically shown to account for more than 1/3 of all auto thefts in the United States. Car insurance agencies look at these statistics, look at the type of car you drive and decide how risky insuring you would be. If you drive a 1992 Honda Accord in Los Angeles, California you are more likely to pay a higher rate than someone in Michigan with a Hyundai Accent.
Take a look for yourself and see how your car insurance rate is calculated. It puts real value on insurance tips .
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