If you go back one hundred years, pricing was all down to the area and the people you knew. Retail was always very small scale with most trade going through independent outlets. This started with market stalls and worked up through Main Streets to the first real signs of regional chains. So the prices you would find for the same goods would vary depending on where you were and the nature the business. In neighborhoods where everyone knew everyone else, businesses would change their prices based on what the believed people could afford. The more caring would give credit, trusting their neighbors to pay at the end of the week or month. All that changed as prices were standardized. Manufacturers agreed target prices with wholesalers. Flexibility disappeared. It was the same with the service industry including insurance. As insurers grew big enough to sell policies across a single state, everyone was expected to pay the same. Except, of course, not everyone is the same.
Insurance has always been about estimating the risk of a claim and guessing the size of that claim. When it comes to insuring a home, some people live in humble circumstances while others occupy a palace. When vehicles grew more common, decisions had to be made. At first, Model T Fords rolled off the production line — 15 million between 1908 and 1927. So most people were driving the same car. This made it easier to estimate the size of losses. Once you have a count of all the home owners or drivers, you divide the amount of the estimated losses by the number of people, add the cost of administration and a profit margin. This gives a single premium rate for all policy holders.
Except people have different motives and incentives. Let’s say you pay the same whether you own an expensive or cheap vehicle, or whether you are a careful or dangerous driver. Then what encourages you to drive safely? The answer is “simple”. If the premium rate is personalized so that safe driving is rewarded with lower premiums and multiple crashes are greeted with major premium rises, then you may change your behavior to ensure you pay less. So let’s have a basic rate and then adjust it up or down depending on who you are, what you drive, where you live, and so on.
There are a list of factors insurers use as the basis of setting the final offer. Some may individually seem fair, e.g. whether you have a long list of traffic tickets, or less fair, e.g. whether you have a high credit score. Ignoring the individual elements, the combination of all these factors gives a reasonably balanced view of a person without actually sitting down face-to-face and carrying out an interview. So, when the car insurance quotes arrive, ensure you have qualified for all the discounts. This starts with a conservative make and model, i.e. one with a good safety record and less favored by car thieves. Then have you fitted all the standard safety and anti-theft devices? Will you park it off-road when not in use? Have you been on approved defensive driving courses? If the premium rate looks high, go through the process again and get a new set of car insurance quotes. By trial and error, find out how you qualify for the discounts.