Insurance Insights ~ September 2000

How Are Car Insurance Rates Set?

Many times as an agent we are asked how an individual's insurance rate is determined. Insurance can't be priced like most products, since the money people pay for it is intended to help cover the cost of unforeseen future happenings -- such as, fire, theft, or accident.

While many factors are considered in determining rates, rates basically are dependent on two primary factors: the frequency of claims, and the severity (as measured by cost) of each claim, known as the company's loss experience. The companies use their loss experience, supplemented by factors reflecting economic trends, as a guide to the amount they will be required to pay for future claims and meet the costs of doing business.

Once the company determines its estimated future costs, its rates are set based on a variety of individual factors. In the case of auto insurance, drivers are categorized into several different rating classifications, based on similar expectations of having a loss. For example, young drivers are classified as potentially higher risks because of the loss experience of similar drivers.

Auto rates are based on a number of factors described in the following areas:

RATING TERRITORY: The state is divided into rating territories, whose boundaries are determined by such considerations as population density, traffic congestion and other factors which affect exposure to accidents. Premium charged to an individual car owner is affected directly by the number and cost of accidents caused by drivers who live in his or her rating territory, as well as the number of thefts in that area.

DRIVER CLASSIFICATION: Well-documented studies make it clear that some groups of drivers have more frequent and often more costly accidents than others. Age, sex and marital status are recognized as reliable rate making criteria.

DRIVING RECORD: Statistics indicate that people who have been responsible for accidents or have been convicted of serious driving violations are more likely to have accidents in the future.

USE OF CAR: Cars that are driven to and from the job usually are more vulnerable to accidents than cars used only for pleasure purposes, because they are exposed to heavy traffic conditions. The same is true for cars being used for business purposes throughout the day. Premium charges are in relation to the total number of miles a car is driven each year and exposed to more accident conditions.

TYPE OF CAR: Certain types of cars cost more to repair or to replace, based on factors such as ease of repair and the original cost of the car. These factors are taken into consideration when determining auto insurance premiums. New cars, for example, are more costly to repair and to replace than are older, less expensive vehicles.

Buying a New or Used Car

Shopping for a new or used car is always an exciting time. But one thing that can quickly put a damper on that excitement is being surprised by how much that car might cost to insure. To avoid a surprise like that, you can give us a call and we can give you an idea of how much your car insurance will be. The more information you can provide for us, the more precise the price will be. Information that is helpful is the vehicle identification number (17 digits), and what options are included on the vehicle, such as anti-theft devices, air bags, and anti-lock brakes (2-wheel or 4-wheel). Even without all that information, we will still be able to give you an approximate cost.

It's also a good time to consider a few other things. If it's a newer car and you are purchasing comprehensive and collision coverage, you should also consider having towing and transportation expense (rental) coverage. With towing coverage on your policy, you will be reimbursed for any towing charges you may incur. Some policies will provide reimbursement up to a specific dollar amount. Your Erie Insurance policy will reimburse any reasonable towing expense. It will cost you much more to have your car towed off the interstate than across town.

With transportation expense coverage, your policy will pay up to a specified amount for a replacement rental car in the event yours is not driveable as a result of a covered car accident. Amounts for this coverage begin at $20 per day, with higher limits available.

These are things that we may not think about until we need them. New cars come with many service options available, but there are often limitations on when they will pay. And, to our knowledge, none of them will provide you with a rental car in the event yours is damaged in an accident.

Once you've purchased that car, call our office to make sure the dealer has contacted us with all the necessary information. It's also a good opportunity to review the coverage on your policy for this car, as well as any other cars you may own.

Safety for Women

Today, more than ever, women are on the move. They are traveling for business or pleasure and often they are alone. Law enforcement officers offer the following simple safety ideas to help keep you safe:

• This may sound like a no-brainer, but keep your doors locked. This prevents someone from being able to open the door and enter your vehicle.
• When leaving your car unattended, keep a man's hat and a "macho" magazine, like Guns and Ammo in sight. Thieves and carjackers will often look for signs of a woman's car as easier pickings!
• Don't leave correspondence or anything with your name or address on it in the car. This will lead a thief right to your door.
• Carry a flashlight.
• When walking to your car, keep your key ready. You will be able to enter your car more quickly, or if necessary, use it for protection.
• Look inside your car before getting in. Check for someone hiding in the rear seat or back of the car.
• Be careful if someone calls your name. "Size them up." They may have gotten your name from a vanity plate, or correspondence that is visible in your car.
• If someone does try to attack you, get underneath the car. They cannot reach you unless they crawl under, and you can roll out the other side -- then run!
• While driving, allow space between you and the vehicle in front of you to pull out should someone approach you. Don't let yourself be trapped.
• Carry a cell phone for emergencies.
• In the event of a breakdown, put on your 4-way flashers and use your cell phone to call for assistance. If you feel you are in danger, dial 911.
• Best yet, travel with a friend or a group. It makes the trip more enjoyable and at the same time, reduces the chance of you becoming a victim.

INSURANCE INSIGHTS is an electronic newsletter published monthly (except for January and August) by G. C. Weimer Associates, Inc. Information contained herein is accurate to the best of our knowledge and belief as of 9/1/2000. If you have a topic of interest for a future issue, e-mail us at info@gcwinsure.com.