Helping you understand insurance through the eyes of an Actuary

What is an Actuary?

An actuary is a professional who specializes in assessing and managing financial risks using mathematical, statistical, and financial principles. Actuaries are primarily employed in the insurance and pension industries, where they analyze data and use complex modeling techniques to make informed decisions about pricing, reserving, and risk management.

Ok, so now that I understand that an Actuary prices my insurance, how are car insurance premiums calculated?

Car insurance companies look at a driver’s profile from many aspects to set the policy’s rates.

A driver’s profile includes some factors which are in their control such as maintaining a good driving record, amount of coverage, or driving an affordable car to insure.

A driver’s profile also includes some factors which aren’t directly or easily in their control such as location, age, gender, marital status, credit score, and auto insurance and driving history.

The lower the risk posed by a client to an insurance company, the lower their premium.

Below, we break down the insurance rating factors and how each can affect your car insurance premium and what you can do about it.

Demographics are used to calculate auto insurance rates

Insurance companies take into consideration the applicants’ age, gender, credit score, marital status, homeownership status, and more when calculating your rate.

Insurers use this information as a proxy to understand the risk posed by a client in order to  properly group them with like risks and assign an insurance rate.

It is statistically proven that those individuals with higher credit scores are less risky to insure.  The underlying theme is that higher credit scores are a result of many good decisions which most times involve

      • Income stability (consistently have a job to show income)
      • Sacrifice (don’t buy things you can’t afford and put it on your credit card which increases your debt to income ratio)
      • Responsibility (pay your bills consistently results in higher credit scores)

All of the above can be correlated with qualities of a better driver.

What can I do about my credit score?

    • Evolving your credit to be higher is a long game and takes sacrifice, dedication, plus more.  But, if you do it, you’ll be better off with insurance prices in most states, lower loan rates, etc.  #Sacrifice&ResponsibilityAreCool

Not too young and not too old.  Statistical models have proven that teens and seniors are groups with higher risks for accidents.

  • Too young results in not enough driving history.  And, we all know the saying “practice makes perfect”.  Ok, not perfect in this case, but better.
  • Too old and our reaction times increase, our coordination is less, our muscles are weaker, eyesight is worse, etc.  Getting old isn’t the greatest for our abilities to drive
  • Sweet spot is between 25 and 60.

What can you do about your age?

    • Not too much.  One thing is to start driving when you can to start the counter on the years of experience.  #Don’tPutOffTillTomorrowWhatCanGetDoneToday

Statistics show that single drivers are twice as likely to be injured in accidents as married drivers.  This is why marital status is accounted for in premiums. 

What can I do about my marital status?

    • Now, we aren’t saying “go get married to save on insurance” but if you are going to get married anyway, it is a nice added benefit.  #EconomiesOfScale

Gender is a larger factor  in young drivers than experienced ones. On average, a female teen driver pays $754 less per year in auto insurance premiums than a male teen driver.  This is because car insurance companies see young male drivers as more likely to take risks than their female counterparts.

What can you do about my gender?

    • Not much from an insurance perspective.  #ComeOnTeenMales,YouCanDriveSafer

Insurance history impact on insurance pricing

Insurance companies have lower rates for drivers with longer insurance histories.

A lapse in coverage or no prior insurance insurance can be a red flag to some insurance companies.

The longer the continuous coverage and higher coverage amounts are things that can land you in a group with lower costs to insure and thus lower premiums for you.

How long you’ve been continuously insured and how long you’ve been with your current carrier matters.

If you had a break in insurance without a good reason, it shows that you aren’t likely to pay your bills or stick around long as a customer.

If you switch carriers every 6 -12 months, the new carrier that is giving you a price isn’t going to expect you to stay around and thus increases the cost you pay in most cases.

What can I do to influence my Insurance History?

    • Don’t have a lapse in coverage
    • Stay with a company for more than 12 months before shopping
    • #MakeYourselfATargetForInsuranceCompanies

Less claims puts you in a better group.  Most carriers look back either 3 or 5 years for claim history and yes, even the claims where you weren’t at fault are used.

Not all claims are equal.  Comprehensive claims are less impactful than collision most times.

What can I do to influence my claim history?

  • Drive safer
  • Pay for a small claim out of pocket
  • #ResponsibilityYeildsRewards

Driving fast, not stopping completely, driving without a seatbelt, driving while texting, and more are all violations that make you a higher risk to insure.

What can I do about my violations and tickets?

  • Some states allow for defensive driving classes which can offset some tickets and violations.
  • Taking your time, project planning your life so you don’t leave late and then speed, etc. are all things that some people would say isn’t cool.  But, you want to know what is cool; saving money to spend on fun things and not higher insurance premiums is cool.  It allows you to drive a better car, live a better life, etc.

After all, haven’t we all learned that the people with the crappiest cars are the ones that seem to be in the biggest hurry.  Save your money, buy that Lexus and drive safe and let them all see you in that car. #LiveYourBestLife

Location's impact on insurance pricing

Auto insurance is regulated by each U.S. state.  Within each state is is priced based on the ZIP code in which a driver resides or even at a lower level.

State requirements around a drivers’ basic minimum coverage can vary and the higher the minimum coverage, the more you’ll pay for that minimum coverage.

Now, let’s all be responsible and only get minimal coverage if that is the right thing for you.  #SocialResponsibility

Where you live is a factor.

  • Some states are more difficult insurance states due to regulation.  CA, MI, MA – we’re speaking to you.   Please let free markets reign and stop trying to influence through policies.
  • Car insurance is priced by ZIP code and sometimes even more granular to help insurance companies adjust for the external rating factors which can vary with each area. Insurance costs are higher
    • Areas with more drivers
    • Areas prone to  weather such as floods, earthquakes, wildfires, hurricanes, etc.
    • Areas prone to crimes such as vandalism or theft.
  • In many cases, those in rural areas pay less in car insurance premiums than do their urban counterparts.
What can I do about location?
    • Move to a cheaper part of America
    • #AmericaIsBeautiful

Some states that are considered no-fault require personal injury protection (PIP) coverage, and that additional coverage costs more.  An example is the state of Florida which is a no-fault state with high PIP insurance requirements.  PIP is one of many reasons Florida residents pay more for auto insurance than drivers in other states.

What can I do about location?
    • Move to a cheaper part of America
    • #AmericaIsBeautiful

Your choices and their impact on insurance pricing

The choices you make around what car you drive, how much coverage you want, what payments you are comfortable with, all affect your insurance costs.

If a vehicle costs more to replace, the insurance company will charge you more for these potential costs (via collision and comprehensive coverage).

In today’s technology focused cars, they can help avoid accidents but if they do get in an accident, they are more costly to repair.

Additionally, insurance providers may take car ownership status into account as well, and rate based on whether your vehicle is owned, financed, or leased.

What can I do about the car I drive?

    • Before you buy your next car, take total cost of ownership into account and one of the big expenses is the cost to insure.

Coverage is a balance of how much risk you are transferring from you to the insurance company.  That risk is broken down into

What can I do to influence my coverage?

    • Choose the right amount of coverage for you
    • Increase the deductible to an amount you can afford
    • #BalanceYourRisk

Customers which can pay for the full premium upfront normally get a good discount for doing so.  It shows that you are responsible with your money to have enough to pay upfront and also saves the carrier on payment processing fees which they sometimes pass that savings to you.


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