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How does the insurance company determine my premium?

The Rundown
  • In order to obtain an accurate quote, drivers must input accurate, personal information
  • When drivers submit their information for a quote, the insurance company puts them through an underwriting process
  • Insurance companies typically ask for similar information when filling out a quote

If you’re looking to meet Texas car insurance requirements and have become frustrated by high rate quotes, you may find yourself wondering, “If these insurance companies advertise such low car insurance rates, why are my car insurance quotes so high?”

Why and how insurance rates are calculated is information you should know. It can help you not only understand why you’re getting such expensive car insurance rates and also learn how to shop around for a better deal.

While it would be wonderful, drivers can’t just ask a car insurance company to give them the lowest rate. You can renegotiate by, for example, reducing your coverage to pay less. You can also get quotes from other companies to see who might charge you less. Ultimately, insurance companies are calculating premiums to cover potential losses based on factors that aren’t entirely within our control.

How does the insurance company determine my premium?

An understanding of how the insurance industry calculates insurance rates for drivers will help you to navigate your insurance shopping experience. It will also help you to take charge of your car insurance policy and save money.

Now, if you’re eager to learn how to calculate premiums, start studying quotes in order to understand how insurance companies produce the rates they do. What’s even more exciting is that in the internet age, you have a wealth of free information at your fingertips.

Read on to learn more about how insurance companies determine premiums. Enter your ZIP code and start comparing free quotes from insurance companies near you.

How do insurance companies calculate rates for drivers?

There’s no single “how to calculate insurance premium formula. If you’ve tried to find one, most likely you were confused by an array of results that offered up different answers.

This is because each insurance company decides how to calculate premium percentages for car insurance applicants. There’s no universal method.

The process, which uses mathematical calculations a lot of statistics, decides what drivers should be paying for their insurance, is known as the underwriting process. They rely on many common factors like driving record, age, zip code, and what you drive. Things like a speeding ticket may increase your rates while having a car with certain safety features built in could earn you discounts on the core premium.

While most drivers are familiar with the role of their local insurance agent, most have no idea of the role, or even the existence of, insurance underwriters.

Your local insurance agent can help you understand how your policy works, assist you with the complications of the claim filing process, and even help you figure out your policy needs.

And yet, despite all this, the unseen underwriter has the biggest impact on your insurance policy because the underwriter works directly with the underwriting process.

It is underwriters who determine the level of risk each driver carries, but in order to produce an accurate quote, certain information needs to be shared with them.

What information must drivers share for an accurate quote?

When you want to receive an insurance quote, you must be willing to share quite a bit of private information about yourself to get the most accurate result. If you’re curious about how to calculate premiums in general, insurance companies typically ask drivers to provide:

  • Their age
  • Their gender
  • The age when they first got their license
  • Their driver’s license number
  • The make and model of their vehicle
  • The age of their vehicle
  • Their address
  • Their claims history

In addition to this information that drivers can fill in manually, insurance companies will also consult the motor vehicle report (MVR) for each driver to learn about any moving violations on their record, but that’s not all that insurance companies are interested in.

When you apply for a quote in Texas, you might see a warning that an insurance company will be running a soft check on your credit in order to obtain your credit score. A soft check means that points won’t be detracted from your credit score.

While some states have outlawed the practice of using credit to set auto insurance premiums, your credit can actually play quite a large role in your rate calculation in Texas. Just take a look at this chart below to see how different rates can be for a driver with excellent credit and a driver with poor credit:

GroupGood Credit HistoryFair Credit HistoryPoor Credit History
Allstate$4,370.89$5,107.95$6,977.11
American Family $3,672.27$4,205.41$6,669.84
GEICO$1,902.16$2,851.60$5,036.40
Nationwide $3,235.20$3,722.88$4,644.64
Progressive$4,201.38$4,536.59$5,256.57
State Farm$2,023.50$2,538.85$4,077.51
USAA$1,696.02$2,109.52$3,658.82

Due to the intense scrutiny that insurance companies put each driver through, even if you and your neighbor were to purchase just the minimum of Texas car insurance, the pair of you could be faced with very different annual rates.

For example, if you have great credit and no accidents on your record, but your neighbor has several moving violations and poor credit, your rates would most likely be dramatically lower than your neighbor’s.

Now, if your credit is less than desirable and you have a few tickets to your name, don’t worry. There are still steps you can take to obtain cheap Texas car insurance.

How can drivers buy cheap car insurance?

With all this information in hand, you may be asking wondering what you can do to get cheaper car insurance. Well, you’ll be happy to learn that you have more power than you think when it comes to obtaining affordable insurance.

While the best way to ensure that your insurance rates stay low is to practice safe driving habits, you can also work to improve your credit score.

Of course, no one knows the future. So you never know for sure what your car insurance rates will look like down the line. Thankfully, most major insurance companies offer a wide range of discounts for their drivers to take advantage of.

When shopping for a new insurance policy, you can refer to this list to see what kinds of discount you may qualify for:

Progressive DiscountsPercentage Saved (when available)
Adaptive Cruise Controlx
Adaptive Headlightsx
Anti-lock Brakesx
Anti-Theftx
Claim Freex
Continuous Coveragex
Daytime Running Lightsx
Defensive Driver10%
Distant Studentx
Driver's Ed10%
Driving Device/App20%
Early Signingx
Electronic Stability Controlx
Family Legacyx
Forward Collision Warningx
Full Paymentx
Good Creditx
Good Studentx
Homeownerx
Lane Departure Warningx
Low Mileagex
Loyaltyx
Marriedx
Multiple Policies12%
Multiple Vehicles10%
Newer Vehiclex
Online Shopper7%
Paperless Documents$50
Paperless/Auto Billingx
Passive Restraintx
Safe Driver31%
Stable Residencex
Switching Providerx
Vehicle Recoveryx
VIN Etchingx
Young Driverx
Total Discounts Provided 36

You should also review this list even if you like your insurance company but find your policy up for renewal. Making sure that every discount you deserve has been applied to your policy is the easiest step you can take to obtain cheaper rates.

Determining Car Insurance Premiums: What You Need to Know

Your insurance premiums are determined through an underwriting process that uses mathematical calculations and statistics to assign you a level of risk.

Each company has its approach to this underwriting process, but almost all require similar information to get the process started.

Bearing that in mind, how can you buy car insurance and make sure your rates stay low? The solution is easier than you may have previously thought.

Use good defensive driving strategies, maintain a good credit score, don’t be shy when inquiring after discounts, and get at least 3 quotes from different companies to compare. These steps can help you obtain insurance that is budget-friendly.

Now that you know the answer to “How do insurance companies determine my premium?”, find out what your rates will look like with top companies. Enter your ZIP code to receive free insurance quotes today.

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