Wed, May 18, 2016

FACTORS OF RATEMAKING

We hear this question time and again. Why does my old car cost more to insure than my new car? The answer, although not difficult, is long and fairly detailed. The fact of the matter is the age of your car is only one minor detail that makes up your premium.

So, could a brand new Cadillac Escalade cost less to insure than a 1995 Buick Skylark? Probably not, but that depends. In response to competition and a public belief that premiums should reflect very individual exposures, rating has become very sophisticated; many rating categories have been developed and this has resulted in a multitude of premium permutations.

Automobile insurance ratemaking is an actuarial science. Autos are divided first into major classes including private passenger vehicles, commercial vehicles, public automobiles (taxis, buses), recreational vehicles (ATVs, motorcycles), garage risks, and non-owned automobiles. Each risk is then based on the hazard presented by the territory where the automobile is used, class of automobile and its uses, drivers, and the automobile itself.

Other factors taken into consideration are the MSRP of the vehicle, body style, horsepower, costs of repairs, frequency and costs of actual claims for the year, make, model of the automobile, wheelbase, weight-to-horsepower ratio, and the theft record of individual models.

Premiums are based on actual data compiled by the General Insurance Statistical Agency and the rates charged by Insurance companies are reviewed and must be approved by the provincial Superintendent of Insurance. As well, the government of Alberta has the Grid which ensures drivers are not over charged for basic automobile insurance based on their age or gender.

So, just because your old junker's value is a fraction of your new car's value, that doesn't mean the insurance will also be a fraction of the cost.