How Do Auto Insurance Companies Use Rating Territories?
Car insurance companies frequently rely on rating territories to help determine how much motorists should pay for vehicle coverage. Where a vehicle owner lives can influence policy prices significantly because location often indicates many important details including traffic congestion, accident frequency, crime rate, and commute distance.Breaking up an area into rating territories allows insurers to conveniently adjust insurance prices based on the previously mentioned details. The majority of insurers use this information regularly as a tool when considering how much is car insurance going to cost for a specific motorist. Because of increased congestion and a higher rate of auto theft in urban areas, motorists in these territories frequently pay higher policy prices than vehicle owners in suburban and rural areas.
Between two relatively close territories there can noticeable be price discrepancies. For example, a premium-comparison report from the New York Department of Financial Services showed the average auto insurance premium for an unmarried 20-year-old male, living in the Bronx Urban area of New York, was nearly $3,700 in 2010. For the same motorist living in the Suburban area of the Bronx, the average premium was just over $3,000. The difference in congestion, crime, and other details allows insurers to charge motorists differently, based on the likelihood that they will file a claim.
Restrictions on Territorial Rating
Although looking at territory is helpful for setting rates, some states—including California, Connecticut, and Massachusetts—have created special rules regarding the use of rating territories.
In the Golden State, for example, a rating territory must be at least 20 square miles, and insurers may only use this information as a secondary rating factor, after first considering all three of the primary rating factors established by Proposition 103—which are driving safety record, annual mileage, and years of driving experience.
Connecticut has similar restrictions regarding how insurers can use territorial information. In CT there are 18 territories, and insurers may only give a small amount of weight to statistics in individual areas. The Insurance Department requires a 75 percent to 25 percent weighting of statewide statistics versus territorial statistics. This helps prevent significant price differences between areas.
If a motorist plans on changing locations, it may be beneficial to contact several cheap insurance companies to find out about the potential coverage costs associated with living in another area. Moving to a location that has less traffic congestion and lower levels of auto theft can often make a noticeable difference in one’s policy prices.