I had a very interesting conversation with a customer the other day. He had called to review why his auto insurance rate had increased. After review I was able to confirm that no additional accidents or citations had impacted the rate, and he’d made no changes in vehicles or drivers. The insurance company had had a small 5% rate adjustment across the board (inflation anyone?) – but his rate had increased significantly more than 5%. And I was left with the unfortunate duty to inform him that his rate had increased due to advanced age – he had turned 84 in May.
“That’s discrimination!” he objected. And I agreed – insurance companies discriminate ALL THE TIME on factors like age, geography, marital status and credit scores. Having a hard time understanding me on the phone, he passed me onto his wife, age 78 – who exclaimed the same “That’s discrimination!”
We discussed that young drivers pay more than mature drivers. They are more likely to be involved in accidents due to lack of experience and an invincible attitude. Most of us improve as drivers as we acquire experience on the road, and become more cautious in general. But when we enter more advanced age, we experience a normal reduction of physical (and sometimes cognitive) ability. Reaction times slow, hearing and eyesight fail. And these factors make us more likely to be involved in an accident. We’ve all seen headlines of an elderly driver mistaking the gas for the brake and plowing into a crowd of pedestrians, or jumping a curb and crashing into a store wall.
That’s not to say that there are not some fabulous 16 and 80 year old drivers out there. There are plenty of kids that never have a crash, and plenty of “mature” drivers whose excellent driving experience more than compensates for diminished capabilities. BUT – as a group they are more likely to be involved in a crash than those in the 30-55 age range.
As I said, insurers discriminate all the time. However Insurance laws prohibit “unfair discrimination“—that is, the formulation of rates on the basis of criteria that do not fairly measure the actual risk involved.
It’s a fact that insurers are in business to make money. Rates are determined by analyzing claims frequency and severity and attempting to predict which group of drivers will result in the highest number of accidents. Claims are analyzed every which way and weight given to sets of factors that correlate with loss. And when I say claims, I’m not just talking about accidents. For vehicles, we’re including theft and weather related claims, and glass repairs. For homes, weather in the geographic area, theft statistics, pet ownership, and even the readiness of the area’s fire department have an impact.
There are some pricing factors over which you have complete control. Your driving record, credit history, and choice of vehicle and residence location for example. Others over which you have little control – your age for example. Doing what you can to manage the things you CAN control, and then finding the right company for those you can’t is the key.
Yes – in general a 16 year old will pay more than a 30 year old with a similar driving record. And you’ll pay more to insure a new more expensive car than the same model 5 years old. BUT – for each there are companies which may be more favorable to you – both the things you can control and those you can’t.
While each company sets rate internally based on their claims history, many will have groups they target – or a sweet spot. Some are more favorable for families with young drivers, or customers with less than perfect credit. Others will be more competitive for sport bikes, or in a few select geographic areas. Checking out several companies will help insure you’ve got a good fit for your situation. And when your situation changes – when you add a young driver, switch to a high performance vehicle, move, or as you age, checking again will keep your pricing competitive.
Insurers must “file” their rating structure with each state in which they operate – backing up their estimates of which drivers, vehicles, locations are more likely to result in claim payouts. In essence this is providing back up for why each group is being “discriminated” against.
Karen Diehl operates Diehl Insurance with husband Eric. They agency specializes in motorcycle insurance for motorcycles and collector cars in Ohio, Kentucky and Indiana.
