Buying car insurance isn’t like buying a gallon of milk: it’s not sitting on the shelf, conveniently above a sticker telling us it costs $3.99. Instead, insurers ask for a lot of information before providing a quote, and even then, different companies charge very different prices for the same person with the same car. How come?
Many factors influence the price of car insurance. These include the driver’s age and driving history, their address and marital status, even their employment. Details of the car, like make and model, and its use (commuting? pleasure? business?) are also important. Insurers are trying to figure out how risky a particular driver is based on these and other factors, and higher risk means higher prices. (Check out our FAQ for more factors that influence insurance prices). The amount of coverage also affects the price: higher liability limits or lower deductibles will increase premiums.
Still though, why do prices vary so much between different insurance companies for the same coverage? The short answer is: because insurance premiums depend on the characteristics of the insurance company almost as much as a driver’s profile and car. That is why it is so important to shop around and find the right insurer for you. Risk assessment is not standardized across companies. The riskiness of different factors, like years of driving experience or car type, varies in each insurer’s models. For example, one insurer might view BMWs as especially risky to insure. These determinations are based on analysis and data that are unique to each company: a company that sees higher rates of claims among the BMWs that they cover might charge these drivers more. Insurance companies are also spreading their risk across their specific pool of customers, so the characteristics of existing customers are considered when a company provides a new insurance quote. All those risky BMW drivers might mean higher prices for other cars too, as the insurance company seeks to cover some of its losses and keep its overall risk under control.
Lastly, insurance companies need to consider their cost structure when pricing insurance policies. Employees, renting offices, and advertisements all need to be paid for by the firm. If a company generates most of its business through high-cost brick and mortar stores, they will need to charge more than a company that is completely online and has lower expenses.
In summary, there’s good reason to check car insurance prices across multiple carriers, or work with brokers (like Sigo!) who work with multiple carriers. Checking with multiple carriers will help drivers find a good fit, risk-wise, and ensure the best price.