Determinants of Automobile Insurance

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Determinantsof Automobile Insurance

Determinantsof Motor Insurance and the Types of Discounts Offered

Automobileinsurance is a type of insurance cover that cushions automobileowners against financial loss in cases of accidents (Alfaki &ampEnaji, 2014). The contract is between the insurance company and theowner of the vehicle. The owner accepts to pay the premium while theinsurance provider agrees to cover your losses through compensationas defined in the policy signed between the automobile owner and theinsurance provider (Alfaki &amp Enaji, 2014). Automobile insuranceprovides property, medical, and liability coverage. This paper willdiscuss the five most important factors that determine the price ofone’s auto insurance and explain the types of discounts that canhelp reduce this expense.

Factorsthat Determine the Cost of Insurance

IndividualDriving Record

Anindividual`s driving record is a reliable indicator of risk (“CarInsurance,” 2017). Therefore, most insurance companies base theirpremiums on individual driving records. Those who possess cleandriving records are charged the lowest premiums while those without aclean driving history pay more to access insurance covers. A cleandriving history means that the driver or the owner of the automobilewas not involved in an accident in the past three years or had notbeen convicted of a serious traffic offense during that same period(Alfaki &amp Enaji, 2014). Most states have designed point systemswhere drivers are assessed for traffic violations or offenses.Insurance providers determine a premium that is commensurate to thepoints possessed by the driver (“Car Insurance,” 2017).

TheNumber and the Type of the Vehicles

Mostinsurance providers have a multi-car discount. This cover favorspersons who own many vehicles that need to be insured at the sametime (“Car Insurance,” 2017). The reason behind this discount isthat since the owner possesses more than one vehicle, each automobilewill be less driven as opposed to a scenario where the owner has onlyone car. Also, the type of the vehicle and its age play a vital rolein determining the cost of the insurance cover (“Car Insurance,”2017). Factors that increase the cost of the cover include the safetyof the automobile and the cost of carrying out repairs. Vehicles suchas sports car attract enormous costs since there is a risk of thedriver speeding (“Car Insurance,” 2017).


Ageis one of the most significant factors used to determine the cost ofthe premiums. By compiling information collected over many years,insurance providers have come up with age groups that are likely tobe involved in vehicle accidents (“Car Insurance,” 2017). Personswho fall into high-risk age brackets pay higher rates compared tothose who fall into low-risk age groups. Young drivers are consideredto be among high-risk individuals especially those aged between 16and 23 years (“Car Insurance,” 2017).


Whereone lives plays a vital role in determining the cost of the insurancecover. Insurance providers determine the rates by predicting how oneis likely to file a claim. People living in places with high crimerates and auto theft are likely to pay more compared to those livingin areas where the rate of auto theft is low (“Car Insurance,”2017). Also, in the major cities where population density is high,meaning more vehicles and increased congestion on the roads, theinsurance providers charge more since there is an increased risk ofaccidents (Jamieson, 2017).


Creditscore plays a role in influencing automobile insurance rates.Credit-based insurance scoring is a vital and statistically importanttool used to forecast the likelihood of one filing a claim and themost probable cost of that claim (“Car Insurance,” 2017).Credit-based scores are based on valuable information such asbankruptcies, payment history, and collections among others.

Typesof Discounts Offered

Thereare three essential types of discounts that help to reduce automobileinsurance cover. Driver discounts are based on the student’sstatus, driving history, age, professional organizations, and howfrequently people use their vehicles (Jamieson, 2017). The commondiscounts include good driver, good student, low-risk occupation, andauto club discounts among others. The second category is vehiclediscounts. Providers may reward owners for having vehicles withfeatures that lower the risks of damage or theft. Features such assafety equipment, alternative fuel, and hybrid vehicles play a vitalrole (“Car Insurance,” 2017). Lastly, insurance providers offerpolicy discounts. Policy discounts include multi-vehicle discounts,full payment discounts, customer loyalty discounts, and bundlingdiscounts among others (Jamieson, 2017). Discounts vary widely, andthe terms of these discounts may also vary.


Insurancecovers are meant to cushion vehicle owners against financial loss incases of accidents or theft. The vehicle owner enters into a contractwith the insurance company by agreeing to pay the premiums while thecompany accepts to provide cover in cases of damage or theft. Manyfactors determine the cost of insurance. Insurance providers offerdiscounts to customer depending on many factors. These discounts varywidely, and their terms also differ.


Alfaki,I. M., &amp Enaji, M. (2014, May 28). Effect of Motor InsurancePremiums on Driver Behavior and Road Safety. Retrieved March 21,2017, from

CarInsurance · (n.d.). Retrieved March 21, 2017, from

Jamieson,S. (2017, March 01). `Urgent` consultation over insurance changesamid fears of soaring premiums for drivers. Retrieved March 21, 2017,from