In brief, what affects the cost of auto insurance is the level of risk;

  • low risk = low cost
  • high risk = high cost

To get an understanding, picture yourself as the insurer. You must pay if someone else is involved in an accident in exchange for money. Who would you insure for less cost, 1 or 2?

  1. An uninsured single male who has already crashed once and has two speeding tickets.
  2. A married female who has no negative history and has been insured for the past seven years?

Having a history of losses in the past indicates a higher probability of future loss. What the auto insurance companies do is study those who have had previous claims and find common characteristics between them. They than use that information to determine their rates.


This formula should explain it further;

% of previous claim characteristics = cost factor

Get this however; each company has a unique experience when it comes to losses; therefore, also when it comes to their rates. Each one bases their cost on formulas in attempt to receive more premium than what was paid out in claims. The difference between "received" and "paid out" is their income.

This is why each company charges different premiums keeping in mind that they all have different experiences:

  1. Some companies go after those with a low risk factor because that's what they find to be more profitable;
  2. Others specialize in the non-standard market and offer affordable rates for those with tickets and/or accidents.

The key to finding relatively inexpensive rates is to compare car insurance quotes from a few different companies in order to see who offers a low cost policy compared to others.