I’M GETTING QUOTES ONLINE FOR CAR INSURANCE-I’M GETTING A WIDE PRICE RANGE FROM DIFFERENT COMPANIES-WHY?

This is a really good question, and one which most folks can’t answer because they don’t understand how insurance works.

Companies divide states into territories; a territory could be pretty big, several counties for example, or it could be very small, part of a county or city. They select the territories to group risk/loss. Put simply, you’re more likely to file a claim if you live in NYC or one of the five burroughs versus being in up-state/rural NY, so Manhattan island might be its own territory and the five northernmost counties in NY might be grouped together into one territory.

This is good for the company and for the individual policy holder for a couple of reasons. First, the company is able to price to a small geographic area, which means the folks in up-state NY aren’t subsidizing the cost of insurance in Manhattan, so the folks in Manhattan pay a (higher) price appropriate to the level of risk they present. Second, this allows companies to compete against each other (which always creates lower prices), because each company wants to offer its best possible price to a customer.

The second part of this equation is the characteristics of your policy. WIthin a territory, insurance companies keep track of the types of losses they have. Company A may have a lot of young drivers with severe accidents while Company B may not. In this case, if you’re a young driver, you’ll get a much better price with Company B if you happen to be a young driver. Perhaps Company B has had a lot more accidents for elderly drivers when compared to company A. Thus, if you were an older driver, you’d get a better rate with company A.

The third level is that every company also has its own proprietary “formula” it uses to segment customers. They use dozens of factors (like your age, driving record, occupation, education, credit) to determine the correct price for you according to their loss experience. If Company A has fewer losses for folks who are attorneys have great credit, drive nice cars, own homes then they’ll charge a lower price whereas Company B might have poor loss experience for the same folks, so the price will be higher.

Despite popular belief, insurance companies don’t just make up a price to charge, nor do they charge the most they can possibly get. Insurance companies have to make a profit, so they need to charge premiums that are adequate to cover their losses and to provide a good rate of return for their investors. With that said, they have to offer prices low enough that customers will buy their insurance. Every company’s experience is different, however, so that price varies from company to company, which is why it’s good to shop around.

Good luck buying insurance – just remember you get what you pay for! If you buy coverage because it’s the cheapest, you’ll probably get the cheapest service and customer experience as well. Buy insurance that offers a good value, in the form of good service, good coverage, good price.