Pricing the Premiums


47Drivers are charged high auto insurance premiums only if they possess the high-risk factors. Thus, a sports car driver is has a high probability of paying high premiums while a sedan driver will be required to pay the average or lower premium rate. Logically, insurance companies determine premium rates basing on the cars features: color, model, security and others.

The Highway Loss Data Institute (HLDI), an organization dedicated to provide auto insurance loss statistics and studies, provide regular reports about losses under six insurance Coverages namely collision, property damage, medical, personal injury protection (PIP), bodily injury liability, and comprehensive. HLDI is the country’s main source of insurance loss information and is trusted by most card dealers, auto insurance agents and drivers. Their reports include the main factors used as bases for auto insurance agents to determine the premium ratings.

As of 2009, luxury and sports cars incur the highest collision coverage losses even though micro and small two-door cars have the highest collision claims. SUV’s has the highest property damage losses due to its numerous claims and losses per claim, small sports cars have the lowest overall loss. Medical losses are higher in small cars while large vehicles such as the pickups have lesser medical losses. Small sports cars have the lowest bodily injury liability losses while small two-door cars have the highest in the category. Very large pickups have the lowest overall personal injury protection loss and small four-door cars have the highest. Large luxury SUVs and pickups have the highest comprehensive loss mainly because of theft while small two-door and four-door cars have the lowest.

The trends indicate that small cars tend to get more exposed to danger on the roads than large cars. Expensive or luxury cars and large vehicles are more prone to theft than small cars. They also amount to high collision losses due to the high cost of damage repairs. Small cars are produce higher crash impacts than large cars causing its medical losses to be higher than the rest of cars. Older models have the least theft claims and new models, especially the expensive ones, have very high theft claims.

Auto insurance policy prices are equated with risks. The higher the claims frequency and losses, the higher will the insurance companies price their policies.

With these pieces of information provided, car insurance issuers will know how they can charge for their premiums. They have to accept enough premiums that will make their costs lesser or at breakeven when car owners will make their claim. On the other hand, knowing these statistics would enable the car drivers to be careful in purchasing their cars and choosing their policies. Though these data seems complex, most drivers choose the cars that fits into their budget and that are suitable.