Here’s How Your Auto Insurer Determines How Risky You Are

Virtually everyone who’s ever driven a motor vehicle has technically been in violation of the law at some point or another.

Even the most careful driver exceeds the speed limit from time to time, or parks illegally while waiting for a companion to emerge from the nearest building, or fails to signal before changing lanes on the freeway.

Of course, traffic enforcement personnel catch a vanishingly small share of these infractions. In the grand scheme of things, your typical highway patrolman or traffic cop is far more likely to look the other way at technical violations of the law — or violate the law him- or herself, as anyone who’s been passed by a police vehicle at ten-over the limit has seen firsthand.

Still, it’s settled fact that no driver is perfect. And that means every driver presents some risk for other drivers, pedestrians, cyclists — and, financially speaking, for their insurers.

To be sure, some insurers are more forgiving than others. As the YouTube page for Freeway Insurance makes clear, it’s not difficult to find insurance providers that really do believe in second chances, and stand ready to back up their convictions by providing low-cost, high-quality insurance to drivers without perfect records. But even the most forgiving insurers assign risk scores to every single driver they underwrite.

It’s high time someone peeled back the curtain and illuminated precisely what those scores entail. Read on for more about how insurers determine driver risk and what can be done to mitigate that risk.

Your Creditworthiness May Come Into Play

Do you know your credit score offhand? A few points’ difference won’t significantly affect your insurance premiums, but you should know that impaired credit is not viewed favorably by most insurance companies. If your credit is seriously impaired, you may struggle to qualify for auto insurance at all — though you’ll still find safe harbor with insurers that believe in second chances.

Age Isn’t Just a Number

When it comes to insurance underwriting, age is more than just a number — it’s predictive. If you’re under age 25, expect to pay more for auto insurance, even with a clean driving record.

Other Demographics Play a Role, Too

Age isn’t the only demographic factor insurers weigh to determine risk. Income is a big one, with higher incomes correlating to lower risk. Sex is important, too, as males are statistically more risky. And marital status matters, since married drivers tend to be safer.

Location, Location, Location

Thanks to highly variable insurance regulations, where you drive matters, too. Unfortunately, this is a tough one to control, unless perhaps you’re a super-lobbyist with the power to influence a majority of your state’s legislators. States with strict no-fault insurance regimes tend to have higher premiums than at-fault states.

The More You Drive…

Generally, frequent driving correlates with higher premiums. You’ll need to be honest with your insurer at sign-up, as future claims could be denied if it becomes clear you’re driving a vehicle you said you’re not.

What You Drive

Because spendy vehicles are more expensive to repair, vehicle value correlates with insurance premiums. If you really want to save money on insurance, skip the snazzy convertible and opt for a functional, newer (but not brand new) sedan.

Why You Drive

If you use your car for business purposes, you may be on the hook for higher premiums. However, you may qualify for tax benefits that could offset those premiums — check with your tax advisor for actionable advice.

Parking Tickets Aren’t a Big Deal…

Don’t sweat the occasional parking ticket. Those don’t count as moving violations, so insurers don’t really factor them into risk considerations. However, where you park is a potential pitfall — if your ZIP code is prone to vehicle break-ins and you don’t have access to off-street parking, you could be more expensive to insure.

…But Even Minor Moving Violations Can Add Up

No matter where you live or how carefully you drive, moving violations can add up. And they’re likely to remain on your driving record for quite a while — generally five to seven years, depending on your state of residence and insurer. Plan accordingly.

A DUI Can Set You Back (But Won’t Necessarily Disqualify You)

Major violations like DUI or driving without insurance will set you back even more than a run-of-the-mill speeding ticket. However, once you’ve met any post-violation requirements, you should be able to find insurance again — albeit from a narrower selection of insurers.

These Aren’t the Only Metrics Insurance Companies May Use to Assess Risk

Nerdwallet recently reported on an innovative new means of assessing driver risk, broadly known as “route risk.” Several major insurers have filed patents for variations on this scheme, but the basic gist is simple: Drivers subject to “route risk” scoring can expect to be penalized for taking riskier routes, such as those involving accident-prone stretches of freeway or dangerous intersections.

Other factors may come into play, as well, including the time of day drivers are most likely to be behind the wheel, the number of passengers they typically carry, and average trip length.

You Could Be Riskier Than You Think

As you read through this list, you probably encountered a couple surprises — factors you didn’t realize came into play for insurers assessing driver risk.

Face it: You could be riskier than you think.

And, as our little peek around the future curve reveals, insurers are about to get a whole lot smarter about how they assess driver risk. That could lead to big changes for drivers formerly deemed safe due to favorable demographics or clean driving records.

So, should you trade in your car for an electric bike and say goodbye to the open road? Hardly. Whatever changes may come to insurers’ risk assessment protocols, drivers will still have some control over how they’re viewed by their providers. Keep the focus on what you can control, because doing otherwise is a recipe for frustration.

Image credit: Auto Insurer via Africa Studio/Shutterstock

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