How come the car insurance rates vary so drastically from company to company? That is a very good question. I’m guessing you’ve seen commercials where all were boasting on how much money you can save on insurance by using their company etc. There are car insurance companies that have a comparing and rating system, showing you which is the company with the lowest demands, despite the fact that their company may not be on that list. From that fact many questions were born like: why there are such huge variations from company to company despite the fact that they provide the exact same coverage areas? What’s the difference in security if I’m using a more expensive company? Are there companies that offer different rates for different drivers? These are a couple of questions we’ll try to answer.
First of all you need to know that each company determines the rates given to drivers by a classification known as “tier system” in which the drivers are located. Big companies can go up to 15 tiers, while most of them have 3, 2 or even one (basically they have no tiers). Yet the most used classification is the 3 tier system where drivers are determined as preferred, standard, or below standard (substandard). A preferred driver will have the following characteristics: it’s loyal to one company, getting insurance from them at least three years in a row and in that time he didn’t have any problems or accidents, a clean DMV record and a coverage with limits in liability bigger than the minimum required by the law and above all, low annual mileage.
Car Insurance Rates
On the other side, a substandard driver will have misses in insurance coverage for over 30 days, several accidents that were his/ hers fault, claims for over $500 each, in the last three years, over six DMV points, not exactly the spotless record, or even a DUI. Therefore by elimination, no one that fits in both profiles will simply be categorized at standard. Because of these tiers, the major differences in insurance quotes appear. Take for example to companies: company 1 has 4 tiers of classification for customers, company 2 has 11 tiers. If you go to the first company and you’re a standard driver, than you’ll be placed on tier 2. If you go to company number 2, because of the increased number of tiers, you may qualify (because of some specifics) to a higher tier. Let’s say for example that if you qualify for tier 7-8 out of 11, you have a better chance of getting a good deal.
Another thing is those flashy commercials you see on TV. Those don’t come for free, as a matter of fact you pay for them with your premiums. Big companies like that, can afford to invest quite a lot into market advertising. Of course, that doesn’t mean that getting the cheapest insurance for some unknown company is a much better way to go, since you don’t know exactly how much they can finance in case something happens. Besides, the big companies work on big scale level. The best idea is to shop around for those that are pretty well known and still offer a decent insurance coverage and price.