Why and how are policies priced for different drivers?

Drivers are grouped according to the level of risk each one poses—i.e., the amount of loss incurred by insurers within categories of policyholders. For various reasons, where permitted by law, drivers are often categorized by:

• Sex—Men have more accidents on the road than women.
• Age—Drivers under 25 (and, for some insurers, under 30) are considered at higher risk of having an accident.
• Marital Status—Married drivers tend to have fewer accidents than single drivers.
• Personal Driving Record—Years of driving experience, accidents, speeding tickets and drunk-driving offenses are all factors in determining how much of a risk you pose as a motorist.
• How You Use Your Vehicle—If you commute by car during rush hours, you’re at greater risk of having an accident than if you only drive for errands and recreation on the weekends. Drivers who use their own vehicles for
business also are considered to be at greater risk.
• Type of Vehicle—The value, size, weight, age of your vehicle, even the cost of replacement parts, are essential to determining the price of your insurance. The cost of your insurance policy is largely based on the average cost of covering actual losses, spread out over your particular “rating group” as a whole. Of course, you may rarely have an accident or have your car
stolen, and therefore will rarely need to be compensated. But others in your category may not be so lucky. Your premium will help to pay for their losses, just as their premiums would help to pay for yours.

For example, if you are a 23-year-old man and you park your new sports car on a downtown street in a large city, you will likely pay more for insurance than a 37-year-old woman who parks her four-wheel-drive in the suburbs, simply because, based on average losses, you have a greater chance of having an accident or being the victim of auto theft.