Do you ever wonder how actuaries (aka insurance mathematics wizards) determine the price of your monthly premiums? What are the factors used to calculate the costs and risks of insuring a driver and how do these figures affect car insurance rates?
Since foretelling the future is impossible, insurance actuaries gaze into their Excel spreadsheets, interpret the mysterious numbers behind auto insurance claims, predict future risks, and analyze current costs. But you don't have to be an insurance soothsayer to know the stats and factors that influence car insurance rates. Just read on to learn how actuaries calculate the price of insuring a driver.
Medical costs
According to the National Highway Traffic Safety Administration, over 2.3 million people were injured in car accidents in 2008 alone. And though the number of crashes resulting in injuries has steadily declined over the last 22 years, the medical cost of treating an injured person has actually increased. The average medical cost of treating one auto-related injury skyrocketed from $5,520 in 2002 to $8,522 dollars in 2007.
Repair costs
Car repair costs affect the overall price tag of claims and, by extension, your monthly premiums. In general, when claimants use generic replacement parts instead of parts from the original manufacturer, the costs are significantly less, resulting in lower monthly premiums.
Court costs
In some accidents, liability is litigated, costing injured parties and their insurance companies thousands of dollars every year. Jury Verdict Research reports that the overall median award for an auto liability case in 2007 was over $15,000! Add to that attorney fees and your expenses and you have yourself one expensive claim.
Theft
The FBI reported that there were nearly one million auto thefts in 2008. The average cost per stolen vehicle was around $6,751. Crunch the numbers and what we have is more than $6.4 billion in stolen vehicles every year!
Your auto insurance premium
Bottom line: What does this all mean for you? It's simple mathematics, really. The less your car insurance company pays in overall claims and the less risk you pose, the less you'll pay for car insurance.
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For more information on how your car insurance rate is determined,
visit Esurance's Learning Center.