The factors that affect your car insurance rate can be mysterious. Of course, your driving record factors into it. But many insurers also use a lot of other data about you, like your gender and a version of your credit score, to determine your rate. Every auto insurer has its own way of assessing the risk and setting rates, even though they may consider the same factors about you.
So, exactly what goes into the pricing for your car insurance premium? There isn’t a perfect answer, but experts say dozens of data points help determine what you pay.
“Insurance companies look at a whole host of personal and socioeconomic characteristics to set our rates,” says Douglas Heller, an insurance consultant and expert with the Consumer Federation of America (CFA), a nonprofit consumer advocacy group. “It’s your job title, your level of education, whether or not you own or rent your home, and more.”
You can’t control some of those, like your age, but others you can. There are some you might not even know about, and some that are completely unrelated to your driving, which some critics say is unfair.
Heller and several other consumer advocates argue that premiums should be influenced by more obvious factors that most people assume — by how you drive, the type of car you drive, and how much you drive.
PRO TIP
When it comes time to renew your auto policy, shop around and compare rates with other insurance companies, ask for discounts, or consider a higher deductible (as long as you’re OK with paying more out of your pocket with a claim).
“Everybody thinks it’s completely appropriate for insurance companies to charge different rates for people who have excellent driving records versus poor, unsafe driving records,” he says. “Those factors are not only intuitive, but they’re fair.”
But there’s also another side to the argument, according to David Snyder, vice president of policy at the American Property Casualty Insurance Association, a trade association for insurance companies. Snyder says both driving and non-driving factors are important to ensure auto insurance pricing is accurate and fair for consumers.
“Insurance companies have one interest: to be as accurate as possible when predicting future losses,” says Snyder. “We’re not making a value judgment. We’re just simply saying that based upon our data that certain people with certain characteristics driving under certain conditions are likely to have fewer claims than others.”
Here are five factors you probably didn’t know affect your car insurance rate, and why you should be aware of them.
1. Credit History
In many states, insurance companies can pull information from your credit report to give you a credit-based insurance score, similar to credit scores, to help determine your premium. This helps insurers predict the likelihood of your filing a claim and the likely cost of that claim.
“One of the most prominent and weighty of these socioeconomic characteristics is your credit score,” says Heller.
The Insurance Information Institute says statistics show people with poor credit tend to file claims more often, and those claims tend to be more expensive.
A low insurance score can increase auto premiums by hundreds of dollars, says Heller. Recent data from CFA shows that safe drivers with poor credit in Washington State pay 79% more on average than safe drivers with excellent credit.
Meanwhile, more than 60% of Americans aren’t aware their credit history influences the rates that car insurers set, including nearly 75% of those with lower credit, according to a study by the insurance company Root. The same study shows that once people are aware of this practice, more than half agree that using credit scores to price car insurance is unfair.
“It’s systemically making insurance unaffordable for people who have financial struggles generally and for particularly communities of color that have been left out of full access to wealth building and financial security in this country,” says Heller.
This has led some states to ban the use of credit in pricing auto insurance, including California, Hawaii, Maryland, Massachusetts, Michigan, Oregon, and Utah. If you live in a state that does allow insurance companies to price based on your credit history, work on building your credit to help lower your rate.
2. Gender
In most states, auto rates differ between female and male drivers.
“Statistically, women tend to get into fewer accidents, have fewer driver-under-the-influence accidents (DUIs) and — most importantly — have less serious accidents than men. So all other things being equal, women often pay less for auto insurance than their male counterparts,” according to the Insurance Information Institute.
However, there’s some contradicting evidence. The CFA says that data collected in 2017 shows that older women pay more in auto insurance just to get behind the wheel. It found that 40- and 60-year old women with perfect driving records were charged more than men for liability coverage nearly twice as often across 10 different cities.
Premiums were generally lower for 20-year old women than for 20-year old men, with one exception. The study shows GEICO, the second-largest auto insurer in the U.S., charged young female drivers more than young male drivers in nine of 10 cities.
“Some companies don’t use gender at all. What that tells you is there’s really no good reason to charge women more or less. Companies are using it so inconsistently,” says Heller. “When you’re dealing with big data like the insurance industry has, you shouldn’t see such wide fluctuations among national companies that are serving large pools of people.”
Six states prohibit insurers from considering gender when setting prices: Hawaii, Massachusetts, Pennsylvania, North Carolina, California, and Montana.
3. Marital Status
Your marital status plays a bigger role in your policy rate than you may realize. Most large auto insurance companies have lower rates for married drivers than for those who are single, separated, divorced, or widowed, according to research by the CFA.
It’s common to see rates go up for newly widowed people, says Heller. “There’s a widow’s penalty in auto insurance from a lot of companies. Same goes for if you’re divorced or single,” says Heller.
According to the CFA, auto insurers say that married people tend to drive more responsibly, and therefore should have lower rates than others. “What we found from our data is that married people just tend to be more responsible and have fewer accidents than when they’re singles,” says Snyder.
Even if a married driver is young, they’ll save around 21% versus their single counterparts, shows a study commissioned by InsuranceQuotes.com. The difference is even bigger between married and single women — a young, single woman can expect to pay 28% more than a young, married woman.
4. Location
Where you live has a huge effect on your auto insurance rate. Every state has its own regulations for car insurance, so rates can vary widely among states. For example, average rates for full coverage in Michigan and Louisiana range between $1,400 and $1,700 — four times the average rates in Idaho and Maine.
Rates also vary by ZIP code and neighborhood. People who live in areas with higher rates of accidents, vandalism, or theft typically see higher insurance premiums because they are more likely to file a claim, according to the Insurance Information Institute. CFA research points to significant premium differences between neighbors living within 100 yards of each other in adjacent ZIP codes, which critics say amounts to economic and racial pricing discrimination.
A significant finding from the study was that people who lived in ZIP codes with lower insurance prices were overwhelmingly white, 72% on average, while the more expensive ZIP codes had far more people of color and only 29% of white residents, on average.
“Insurance companies will say there’s a correlation and that’s all it is. They will also say very often they don’t ask for anyone’s race or income, but that just shows that they don’t understand how structural racism works,” says Heller. “You don’t need to ask about race because there are so many parts of our society that have become proxies for race, so the outcome is racialized even if that’s not the intent.”
Additionally, factors such as where you park your car and the car’s safety features may affect the price as well.
5. Education and Job
Many auto insurers tend to take your level of education and job into consideration when setting your rate, but there are some that don’t.
Data from CFA shows that auto insurers typically charge higher rates to drivers who have less education and are in certain occupations.
For example, Progressive often charges a factory worker with a high school degree higher annual premiums than a plant supervisor with a college degree — 33% more in Baltimore, Maryland ($1,818 vs. $1,362) and 14% more in Houston, Texas ($1,406 vs. $1,236), as well as other places in the U.S, according to the CFA.
“A lot of companies will charge more to somebody who has a blue-collar job than a white-collar job,” says Heller. “They’ll charge more to somebody who has a high school diploma than somebody with a college degree or master’s, even if they all have the same driving record.”
Insurers say the reason behind is that less educated drivers and drivers with certain occupations are more likely than others to file insurance claims, according to Heller.
But consumer advocates have challenged the use of education and occupation, as well as other non-driving factors, for pricing car insurance. Some states have even banned certain factors or are considering a ban.
“The truth is the insurance industry knows everything about us as consumers, but it’s very difficult for us to have good information about the companies we have to buy from,” says Heller. “That’s a challenge.”