Washington State Office of the Insurance Commissioner

How do insurance companies set auto rates?

When an insurance company wants to change its rates, it must file enough financial and statistical data with our office to prove that the change is justified. Our office tries to hold down rates by carefully reviewing these requests. Last year, we saved consumers more than $45 million compared to the companies' original rate proposals.

As an individual consumer, you may be able to save more. Insurance companies consider many factors when setting auto rates. By understanding how these factors affect your premium and by shopping around, you can save significant money.


How rates are determined

Insurance companies can look at all licensed drivers in the household — including your spouse and other members in your household, even if they're not related by blood. This includes roommates.

They calculate rates by starting with a dollar amount (base rate). Your base rate is adjusted according to certain factors such as your age, sex, marital status, driving pattern, claims history, geographical area, credit history and the make, model and year of your vehicle.

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Factors insurance companies consider

Your age: Statistics show that drivers under age 25 are involved in more accidents than adults between age 25 and 65. Companies generally consider them to be a higher risk. Families with young drivers in the household may pay more for their insurance. Statistics also show that senior citizens present a higher-than-average risk to insurance companies.

Your gender: Insurance companies can discriminate on the basis of sex if that discrimination is based on statistical evidence, proving one sex is a higher risk. For example, young men — especially those under age 25 — are involved in more accidents and typically pay higher insurance rates.


Marital status: Statistically, married couples have fewer accidents than singles and generally pay lower rates.

Your vehicle: Generally, the more expensive your vehicle, the more you will pay for insurance. Also, because sports cars and high-performance cars are involved in more accidents, cost more to repair, and are stolen more often, they cost more to insure.

Your location: Where you live may affect your rates. For example, the local crime rate may boost or lower the base rate for comprehensive coverage. And the base rate for liability and collision coverage may be affected by the average number of accidents in your area.

How much you drive: If you put a lot of miles on your car each year, you'll likely pay a higher rate. Conversely, many companies offer lower rates to people with low annual mileage.

Your driving record and your claims history: Insurance companies may charge you more if you’ve been involved in an accident or have been convicted of traffic violations. And the more claims you file, the more likely your rates will increase.

Credit History: Washington state has one of the toughest laws restricting how insurance companies use credit history to set rates. But your insurer still may use information in your credit history to determine your premium.


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Additional tips on how to save money

Shop around: Rates for the same coverage will vary from company to company. But cheaper is not always better. Talk with your agent about how much coverage will protect you. These days, you can buy insurance over the Internet without using an agent. Make sure the company you’re considering is licensed to do business in Washington. If you have questions about a company, call us at 1-800-562-6900. You can also check online to see if they're allowed do business here.

Find out the insurance costs before you buy a car: Premiums can vary dramatically based on the type of car you own. Before you buy a vehicle, check with your agent or ask the company how much it will cost to insure it.

Consider higher deductibles: The amount of the deductible you select will affect your auto rate. For example, you may save money by raising your collision and comprehensive deductibles from $250 to $500.

Special discounts: Ask your agent or company if they offer any special discounts. Young drivers, who are good students or who have finished a driver’s education course, may qualify for a discount. Also, many companies will give you a discount on your auto premiums if you also insure your house through the same company.

Insurance companies are required by law to give discounts to seniors who complete safe driving courses. For a list of courses, visit the Washington state Department of Licensing.

 

Avoid duplicate coverage: Your coverage may overlap in some areas, such as medical, collision, or uninsured motorist property damage. Ask your agent or company to explain your coverage and advise you if you’re duplicating coverage.

Collision/comprehensive: If you don’t think you could afford to fix your car yourself if you were involved in an accident, you may want to carry collision and comprehensive coverage. This coverage protects owners of expensive and late-model automobiles against the cost of repairs.

Although this type of coverage may increase your rate, you may want to consider it if the difference in what you pay would exceed your ability to pay repair bills. Your lender may require this type of coverage until you’ve paid off your car.

Remember, just as insurance companies differ in how much they charge you for coverage, they also may differ in the skill, care, and how quickly they settle claims. Ask for advice from trusted friends. And it almost always pays to shop around.

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