Who Decides How Much Car Insurance Premiums Are?

by Beverly Bird, studioD

Insurers determine how much you'll pay for automobile coverage, so it makes sense to shop around for a policy. What matters to Company A might not be a big consideration for Company B. For the most part, however, insurers go by similar rules when deciding premiums. The weight they place on different factors may vary somewhat, and some companies offer perks that others do not.

The Process

When you apply for an auto insurance policy, the company compares information about you and your car against statistics relating to similar individuals and vehicles. This is called underwriting. Based on underwriting results, the insurer determines how much the company is likely to have to pay in claims if it insures you. This is your rating and it determines how much you'll pay in premiums.

Your Car

The car you want to insure contributes to the underwriting process. Newer and luxury cars cost more, so they'll cost more to replace if you make a claim. People are more likely to be injured in sports cars that in sedans and other models deemed to be safe, so insuring a sedan will cost you less. The more you drive, the more you'll pay in premiums, because being on the road more often gives you more opportunity to have an accident.

Your Coverage

Another significant component of premium cost is how much coverage you buy. Most states have laws that make certain types of coverage mandatory, such as liability insurance. If you have a loan against your vehicle, you'll probably need collision coverage as well – your lender won't trust that you'll dig into your own pocket to repair its collateral if the vehicle is severely damaged. The more coverage you buy – such as $100,000 in bodily injury protection instead of $50,000 – and the lower your deductibles, the more you'll pay in premiums.

Personal Factors

Although it might not seem like your gender has anything to do with the way you drive, insurers believe otherwise. Men pay more than women in premiums, and young men under the age of 25 – particularly if they're unmarried – pay the most. Married people are deemed to be more responsible and less of a risk to insure, but senior citizens – even married seniors – are statistically more likely to have driving mishaps, so their rates go up. Your driving record contributes a great deal to the underwriting process. If you've had several moving violations or have shown a history of making claims, your insurance costs will increase. If you live in a city, you'll pay more than if you live in the country, due to crime and traffic statistics.

Your Credit

Although it's a somewhat controversial practice, auto insurance companies will also run your credit score as part of the underwriting process. The theory is that people who pay their bills on time tend to be more responsible and less likely to make insurance claims. Insurers don't look at your score quite the same way as potential lenders do, however. They're not worried that you'll pay them – they're concerned that you'll drive recklessly. They factor certain aspects of your credit score into their underwriting process as part of a statistical model.


Even if you fit a high-risk profile through no real fault of your own – such as because you drive a Mercedes, you're a single male, and you choose to live in the city – you're not necessarily doomed to sky-high premiums if you select an insurer who offers discounts. Some will cut your premiums if you also insure your home with them, if you cover multiple cars on your policy, or if you've gone years without having an accident or being ticketed for a driving violation.

Photo Credits

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About the Author

Beverly Bird has been writing professionally since 1983. She is the author of several novels including the bestselling "Comes the Rain" and "With Every Breath." Bird also has extensive experience as a paralegal, primarily in the areas of divorce and family law, bankruptcy and estate law. She covers many legal topics in her articles.

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