No longer is auto insurance based on how well you know your agent. From their statistics, insurance companies can now tell who is likely to be a high-risk driver. Now, the "black box" is what decides how much you have to pay for car insurance.
Before computers, auto insurance was personal and up to the person who bought it. The insurance agent actually talked to a man he knew in the main office, asked for a few favours, and got the best rates for their best customers. Men under 25 who drove were charged a lot. Young women were charged much less because they were thought to be less of a risk.
Now that we have computers, auto insurance companies keep a lot of information about accidents and claims in large databases. By putting these records through a computer, they can figure out what kind of person is more likely to be a good driver and what kind is more likely to cause an accident. This "Black Box" technology gives them information about the background and behaviour of the people they think should pay more for their auto insurance. For example, people with minimum limits of liability are actually a bigger risk than those with at least 50/100 ($50,000 per person, $100,000 per accident) coverage. Statistics have shown that people with bad credit are more likely to be in accidents.
In Texas, 20/40 is the minimum amount of liability coverage for car insurance. Yep. $20,000 per person, $40,000 per accident. Not much, huh? And if that wasn't bad enough, the least amount of damage to property is $15,000. Guess who pays the difference if you're at fault in an accident?
In most states, the state controls auto insurance. But that's just the start. The state justifies what the auto insurance companies want you to pay with tables of "loss ratios," "exposure," and other words that sound scary. Sometimes, just to throw you off, they'll even say that auto rates across the state are going down. When they do, keep your money close!
After the state sets the base rate, the different companies negotiate with them to change their own rates, saying that they have a better or worse loss ratio than average. So, after the elections are over, the legislature lets exceptions, changes, and endorsements bring them back up to a level where auto insurance companies can make a lot of money.
And that's not all. Most states let each company make its own rules about who gets charged what and how much. So, one car insurance company gives a certain driver a certain rate, while another gives the same driver a different rate. These rules are made by each company.
So, how are rates for auto insurance set? First, the government usually steps in. Then, companies have to choose between staying competitive and making as much money as possible for their stockholders. And finally, now that the "Black Box" is available, auto insurance companies are looking at every driver more closely. The rates are affected by your job, your credit score, your past behaviour, and even the city you live in. They have even found that people with low limits of liability are riskier than people with higher limits. So, if you raise your liability limits, you might be able to get a lower rate on your car insurance.
For some companies, the new "Black Box" technology lowers rates by up to 20% compared to those that don't use it. The bad news is that your credit score does affect your auto insurance rating, and the lower it is, the more your rates will go up. There won't be any more "discounts," "loyal customer" credits, or anything else like that. You will be rated down to your underwear, put in a group with other drivers who are almost exactly like you, and charged based on that.
