Explaining Surcharges and Higher Rates for Inexperienced / Young Drivers and Those With Accidents and Violations
Fact #1: Part of what decides the price of any insurance policy is the relative likelihood of a loss.
If someone were to buy auto insurance that paid only if a meteorite were to smash into his or her car, that insurance would be extremely inexpensive. The chance of that occurring is so remote it is essentially negligible; it is almost certain that a loss would never happen. If, on the other hand, the insurance paid when the car experienced mechanical breakdown, that would be far more expensive, because a loss is almost assured – most cars experience some sort of mechanical difficulty at some point.
Fact #2: It helps insurance companies to know as much as they can about their risks and the likelihood they will experience a loss.
Since the likelihood of a loss influences the price that is charged, insurance companies need to know as much about the risks they cover as possible. This allows them to charge an adequate rate for the amount of losses they can statistically predict will occur. As was established earlier, insurance companies need to charge adequate rates in order to survive.
Fact #3: Statistics prove that inexperienced drivers and those with prior accidents and/or violations are more likely to have future losses.
The data is consistently clear: Past losses, past accidents, and a lack of driving experience all are accurate predictors of future losses. That is, if you have an auto accident, for example – even if you know that you are a good, safe driver who just made one mistake – insurance companies must consider your likelihood of future accident greater than someone without a past accident. The same goes for moving traffic violations and for having less than eight years driving experience.
Fact #4: Auto insurance companies must, in order to survive, charge inexperienced drivers and those with past losses and violations more than those without those characteristics.
If you have a prior accident, violation or are an inexperienced driver:
Since the likelihood of a loss influences the price of insurance, and your likelihood of loss is greater; since insurance companies must charge adequate rates to survive, your company must charge you, and all of the other policyholders like you, more in premium. Not to do so would be irresponsible to the policyholders, because losses would begin to grow faster than income.