Insurance Rate Factors

Factors that may influence your insurance rate include: your risk factor, your history, and competition. Factors used in determining your rate vary by insurer and state.

Your risk factor has to do with how likely you are to file claims, or have others file claims against you. If you have never filed any claims, then they have to guess based on their own statistics. Factors used may include: age, sex, marital status, zip code, occupation, and others.

Your past history of filing claims affects your rate. Each time you file a claim it goes on your CLUE report (a database that insurers use to share info). This information is saved for 5 years.

Lastly, competition affects your rate. Zip code may be based on risk factor or it may be based on what other insurers are charging in that area. Occupation may be based on what other insurers charge for that occupation, but may also have something to do with risk factor. Nobody knows, but the insurers.

With car insurance you see a lot of commercials about how much you can save by switching. How do insurers know a person saved $400 from switching? They ask. It's likely they keep that information. Having information about what other insurers are charging helps them stay competitive.

Say an insurer comes up with an idea to give a discount for a specific occupation, because they are seen as low-risk. The other insurers aren't going to sit back and watch them get all the business. Other insurers may discount that occupation too.

Should you care how insurers set your rate? Not really, but care about being responsible. Let insurers compete for your business and compare rates to save money.