When you apply for auto insurance, the insurer will ask for information about you to evaluate your individual risk characteristics. These individual risk characteristics assist insurers in predicting the likelihood that you will be in an auto accident in the future or will file a claim for damages. Insurers evaluate these characteristics to determine whether their guidelines, known as underwriting guidelines, permit them to write a policy for you.
If the insurer’s underwriting guidelines permit a policy to be written for you, the insurer will then assign a rate based on your individual risk characteristics. Some risk characteristics that insurers rely on to determine rates include:
Your driving record. Insurers are prohibited from increasing your rate based on accidents or traffic violations that are more than three years old. Insurers may consider traffic accidents and traffic violations that have occurred in the past three years in determining your risk. If your driving record is less than perfect, then you will be considered a higher risk and will pay a higher premium.
Geographic area. The number of claims filed by policyholders in your geographic area affects the rates charged by insurers. Counties or zip codes are commonly used geographic areas.
Gender and age. Males and young adults have a higher incidence of accidents; therefore, your gender and age will impact your rate. Rates generally decrease at age 25 and may increase as you approach age 50 or 55.
Marital Status. Married individuals have a lower incidence of accidents and claims. Therefore, married individuals generally pay lower premiums than single people.
Prior insurance coverage. Most insurers ask about your insurance history, including whether or not you currently have coverage or whether or not you have ever been cancelled or nonrenewed. Some insurers require individuals to pay higher premiums if there has been any lapse in insurance coverage. However, insurers are prohibited by law from denying insurance because an applicant was previously insured by the Maryland Automobile Insurance Fund.
Annual mileage. Insurers will also calculate your premium based on the average distance you drive on an annual basis. If your annual mileage is high, then insurers will consider you a greater risk and will charge you a higher premium.
Age, make and model of vehicle. Premiums are also based on your vehicle’s age, make, model and value. Certain makes and models of vehicles – when involved in accidents – cause or permit greater levels of bodily injury, sustain greater levels of damage, and are more difficult and costly to repair. Insurers charge a higher premium to insure those makes and models.
Credit history. Some insurers review an individual’s credit history when determining that person’s premium. For instance, bankruptcies, late payments and the number of credit cards you have may result in a higher premium. Insurers must follow specific laws when using a consumer’s credit history to underwrite or rate an auto insurance policy.
Those laws state that an insurer may not:
- Increase a renewal premium based on the credit history of the insured;
- Apply a surcharge of more than 40% based on credit history; or
- Use the following factors to rate a policy: the absence of or inability to obtain credit history, the number of credit inquiries, or any factor that is more than 5 years old.
Additionally, you have the right to request that your insurer recheck your credit history once per policy period. If your credit history has improved, the renewal premium may be reduced. However, if your credit history has deteriorated, this information cannot be used to increase your premium.
You can review your credit report to become informed about your standing when you apply for certain credit and certain types of insurance. You also may correct any errors you discover in your report. You can review these reports at no charge every 12 months. For questions, to make corrections to your credit report, or to access information about how to obtain free copies of your credit reports, you should contact the Federal Trade Commission at www.ftc.gov.
Compare the premium you are paying to what another company might charge you. Refer to our Automobile Insurance: A Comparison Guide to Insurance Rates at www.insurance.maryland.gov or call 410-468-2000 to obtain a copy. Make sure you compare policies that have the same coverage.
To find out more about automobile insurance, refer to our publication A Consumer’s Guide to Automobile Insurance, which is available on our web site at: www.insurance.maryland.gov or by phone at 410-468-2000.