What Factors Affect Insurance Rates?
Every insurance company determines its own personal insurance rates. Although each formula is different, the following factors commonly affect insurance rates:
For Property Insurance
- Building construction (frame or masonry)
- Public fire protection
- Age and type of roof
- Use of devices like generators or smoke and theft alarms
For Auto Insurance
- The driver's age and driving record
- The vehicle's make and model, age, use, and protective devices
- Location of residence — where the car is usually parked
To determine a premium, underwriters apply these factors to the base rate of the coverages you request.
The base rate is the cost per unit of a coverage type, without accounting for personalized factors.
Why Do Insurance Companies Personalize Rates?
Insurance operates on the principle of shared risk: all policyholders share the risk of each driver and homeowner.
An insurance company must be able to cover anticipated reported claims in a year while offering a competitive rate that reflects each policyholder's individual risk.