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What Insurance Companies Look For When Qualifying You For Auto Insurance

April 6, 2011

When an insurance company qualifies you for insurance they look at a variety of factors and try to determine what the chances are that you will file an insurance claim at some point in the future.

The insurance business is all about risk management. Insurance companies know that past performance is usually a pretty good predictor of future performance. So they look at your past driving history and try to make their best guess as to how often you might file a claim in the years ahead. They also look at a host of other criteria such as the type of car you drive, where you live, how much you drive and more.

Here’s a look at some of the main factors involved in an insurance company’s decision to qualify a prospective client for auto insurance.

Insurance Criteria

  • Your Driving History. Your driving history is one of the primary factors that decide whether you qualify for insurance from a particular company and how much you pay for that insurance. Drivers with no accidents in the past six years are statistically less likely to be involved in a collision than drivers who have had several collisions in the past. Therefore, they are less of a risk to the insurance provider and are likely to get lower rates, assuming all other factors are equal.

    Another aspect of your driving history is the number of traffic violations you’ve had over the past three years. Drivers who have had a number of traffic violations are a greater statistical risk to be involved in a collision and file a claim. Therefore, they tend to be assessed higher rates than drivers with a clean record.

  • The type of car you drive. The type of car you drive is another determinant in whether you are offered insurance and at what price. There are several factors at play here. Firstly, more expensive cars are more likely to require expensive repairs and thus higher insurance payouts if they are damaged.
  • Secondly, some car models are more likely to be stolen than others and the cost of insuring them against theft is higher.

    Thirdly, some cars such as sports cars are statistically more likely to be involved in collisions than others.

    Finally, some cars come with additional safety features that make it less likely that you or your passengers will sustain a serious injury in the car. This lowers the risk to the insurance company and can lower your premiums.

  • Where you live. Some areas of the country are more risky to insure than others. Some communities have higher theft rates, or accident rates, for example. As a result, insurance companies set their premiums accordingly.
  • The type of coverage you need. There are many levels of insurance coverage that you can buy. Some is mandatory, such as property damage and third party liability, other types are optional such as collision or theft coverage.

    The amount of insurance you need is another item to consider.  Because the higher levels of coverage you choose, the more expensive it will be. Some policies also contain endorsements or "riders". These are additional enhancements that you can add to your policy for an increased cost.

    You can mitigate the cost by choosing higher deductible amounts on your policy.  A deductible is the amount that you pay towards each claim you make before your insurance company pays the remainder. For example, if you chose a $500 deductible and were subsequently involved in an accident and filed a claim for $1500, you would pay the first $500 towards the damage and the insurance provider would pay the rest. The higher the deductible you choose, the lower your annual premiums will be.

  • Your payment history. Insurance providers will also check your payment history to see if you have missed premium payments in the past. Customer who have missed prior payments are statistically more likely to miss future payments and missing several payments may result in your insurance coverage being cancelled.

    Auto Plus

    Insurance companies in Canada use the Auto Plus system to track auto insurance claims and has a database of over 30 million claims over the past 15 years. Through this system, companies can check using your driver’s license or policy number to see your claims history and establish their level of risk in insuring you. The system also contains fraud alerts, motor vehicle records and a host of other information.

    For this reason it’s not a good idea to try and hide a past traffic ticket or insurance claim from your insurance provider. They will check your history file when you apply for insurance and you can be denied insurance coverage for failing to report this information.

    Also, once you’ve been denied coverage, it becomes much more difficult to obtain insurance from a different company. No one in Canada can be denied insurance coverage, but high risk drivers must acquire insurance through the Facility Association which handles drivers who are considered to be a significant risk to insure. The premiums charged by Facility Association are significantly higher than other insurance providers.

    If you have any questions it is best to speak to your insurance agent or broker.  If you are concerned about your current rate, remember that you can always search and compare rates online on sites such as www.InsuranceHotline.com to find potential savings.