You know exactly who you are.  You know perfectly well exactly how old you are, how many accidents you've had in the past, how many speeding tickets you've had and how many drivers there are in your household, and you drive a vehicle that is commonly driven by millions of other people.

So why are there as many different prices as there seem to be insurance companies for what you believe to be the same product or service of insurance?

An insurance policy is a complex product; it isn't like a commodity which can be bought off the shelf.  An insurance policy comes with risk to an insurer which could amount to millions of dollars, so they spend a good amount of time trying to understand exactly who you are and what level of risk you may represent.

Unfortunately, an insurance company will never really get to know the real you. They rely upon statistics and averages of individual characteristics to classify you. 

For example, your rates will go up if you get too many speeding tickets.   You may have been unlucky to get those tickets or you truly have a lead foot and therefore present a greater risk to an insurance company. Unfortunately, the circumstances surrounding the speeding tickets are irrelevant and the insurance companies rely on the pure statistical references available to them.

It has been statistically proven that those drivers that speed more often are more likely to be involved in an accident.   This is also true for driver age.  The fact is that drivers with less experience are more likely to be involved in an accident.  

Some jurisdictions do not allow insurance companies to rate a policy based on gender, but statistics prove that young males tend to drive more aggressively than young females and subsequently are involved in more accidents. It is also a myth to believe insurance companies increase drivers’ rates once they have been involved in an accident which was NOT their fault.

Many people believe the insurance company is trying to claw back the money they paid out on such claims.  In fact, rates go up because the risk of maintaining insurance for these drivers increases after such an accident to which the driver is to blame.  Once again, statistically, a driver is much more likely to have a second accident than a person who has never had an accident at all.       

Each insurance company will have different measures in the way in which they weigh all risk factors. This is the main reason why insurance rates vary from company to company. 

 Insurance companies look at industry wide data, but the very best and most detailed information they have is their own data. They refer to all statistical data which they have from policies they've sold in the past and any claims history gathered from those policies.   

The fact that companies are using their own information can also account for price variances in the marketplace. For example, if a particular insurance company determines it has had a disproportionate amount of claims in a particular region or postal code, it is almost certain that rates will rise in that area. The insurance company will decide to charge the appropriate amount for a policy in this area based on past claims history for the area. They will account for projected or potential increase in risk and rate the area accordingly. 

Each insurance company has a business strategy which also lends to price variations in the marketplace.  These strategies can be broad or narrow.  An insurance company entering a new market may have a goal to build market share and consequently might under price the insurance policy in order to meet market share targets.  Another insurance company may be targeting a niche market of professional engineers or teachers and may suppress some rating variables in order to capture this target market. 

There are clearly many different variables which drives the pricing of insurance. Be mindful of these variables but more importantly, always choose Insurance coverage which best suits you.

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