The New Math of Auto Coverage

Auto insurers are making big changes in the way they price policies, and that can mean big savings for you. When Nick Scarafile received his policy-renewal notice last December, his premium had dropped 26% -- and he hadn't changed his cars or his coverage.

Scarafile's insurer, New York Central Mutual, had started to take a much closer look at the driving records and credit histories of its policyholders. Because he has an excellent credit rating, Scarafile ended up with "the most significant decrease" he'd ever seen.

In the past, most insurers based their premiums on only a handful of variables -- type of car, place of residence, age, marital status and driving record. Now they focus on 30 or more factors. "I predict that the 14 companies I work with will all change their pricing within the next few years," says Tom Minkler, an independent agent in Keene, N.H.

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Pinpointing risk. Insurers have been taking your credit history into consideration for some time (in states where that's legal) because they've found a strong correlation between credit history and insurance claims. Now they study credit reports in even more detail, noting, for example, if you've made payments 30 or 60 days late.

Insurance companies are also looking more closely at the type of car you drive. In addition to studying damage and theft claims for that model, they're examining passenger injury claims and the amount of damage done to other vehicles and their occupants.

Because they now have the computing power to pinpoint risk and match it to specific prices, insurers no longer have to cram a variety of people into a wide pricing tier. Allstate, for example, has gone from using seven pricing tiers to 384. As a result, drivers with the best records saw their rates drop as much as 25%. "If you're a better driver, your rates are likely to fall because the subsidies that you've provided to worse drivers will be reduced," says Bob Hartwig, president of the Insurance Information Institute.

Even people with poor driving records are likely to benefit, however. In the past, those drivers were relegated to high-risk insurers that charged hefty premiums. That's because mainstream companies didn't have a system for pricing high-risk policies for drivers with multiple accidents or major violations. Now mainstream companies are offering to cover riskier drivers, often at lower rates than those of high-risk insurers.

Special perks. The company that offered you the lowest price under the old rules may no longer have the best deal. Even under the new pricing structures, "the difference in premiums can be several hundred dollars," says Minkler.

You might benefit from working with an agent to find the best price. Scarafile, who is himself an agent in Utica, N.Y., uses a rating service that immediately checks a client's credit, insurance claims and driving record to get price quotes from several companies. (You can find an agent in your area through www.iiaba.net; also contact agents who sell for a single company, such as Allstate or State Farm.)

In addition, you may qualify for special programs, such as Allstate's Your Choice Auto. With a record of good driving, you're eligible for discounts: Your deductible is lowered by $100 for every year without an accident (with a maximum reduction of $500), and you get a 5% premium discount for every year of accident-free driving, plus a guarantee that your rates won't rise if you have an accident.

The Platinum version of Your Choice Auto costs 13% to 15% more than Allstate's standard coverage. But Michael Hartman, of Aurora, Colo., who signed up for the plan after switching to Allstate last year, is still paying a lower premium than he was with his former insurer. Hartman, 38, hasn't had an accident or a ticket in about five years, so he got $100 knocked off his deductible plus the 5% safe-driving discount. "I'm a price-shopper, but I want to be happy with the product, too," says Hartman. "I like bonuses."

He pays an extra 4% for the bonus he likes best: new-car replacement coverage, which will pay the cost of replacing his vehicle, not just its depreciated value, if it is totaled during the first three years off the lot. "If you're buying a new car, you want this kind of policy," says Hartman, who recently purchased a Hummer H3.

Know the score

Your credit profile has a greater impact on your auto-insurance premiums than ever before. Until now, however, it hasn't been easy for consumers to determine their insurance score, which is different from the credit score that lenders use.

Insurers and credit bureaus won't give away their recipe for the secret sauce, but you can get a version of your insurance score from TrueCredit, available through the credit bureau TransUnion for $9.95. The site provides separate scores for auto and homeowners coverage, plus advice for improving your insurance ratings.