Auto insurance rates are complex algorithms that can be equated to the search algorithm of Google’s search engine. They are enigmatic to the point that every insurer uses their own proprietary algorithm to help ensure their claims or losses do not outweigh their profits. Of course insurers are businesses and need to make a profit. In the quest to lower losses, the insurance industry has long searched for social, political, economic and behavioral factors that show a correlation to fewer claims. Across multiple studies and decades, insurers believe the difference between renting and owning your home is one such factor. That is mainly why they offer cheaper homeowners auto insurance quotes.
Insurance as an industry is in the business of betting against large risks. In order to effectively be able to bet against the risk, for example that a driver with a DUI charge will not commit another offense, insurers simply charge much higher premiums. These much higher premiums across this subset are meant to offset the large losses when a driver commits another DUI offense.
Homeowners Make Better Decisions
In the quest to price premiums so that they effectively cover the cost of claims by their policyholders, insurers need to be constantly revising their algorithms and assessing possible factors that will increase or decrease claims. A long- held belief is that owning a home is a sign of increased social, moral and ethical behaviors that also lead to lower loss claims. An article published in Social Forces found that homeowners were 1.28 times more likely to be involved in community groups and 1.32 times more likely to join a civic association. This increased social responsibility, the insurers contend, lead to safer decision-making once they get behind the wheel of a car, compared to renters. And that is enough to charge less for homeowners auto insurance.
Renters Make More Claims
This assessment seems to be supported by another study conducted in 2015 that directly compared drivers that rented with those that owned their home. The study evaluated 700,000 respondents over a two year period and found that in the youngest age bracket 18 to 24, those that lived with their parents filed a high 24.4% claim rate, renters were second at 19.7% and those that owned their home at this young age, only made claims 17.6% of the time. At 45 to 54 the difference between the three groups was only 1% and it was basically equal for the over 65 year old group. Insurance companies feel justified in charging higher renters car insurance premiums because of this difference in loss claims filed by them.
As a consumer you may feel it is unfair that home owners auto insurance is cheaper. Yet the data collected supports the notion that they should get lower auto insurance rates. If insurers priced the premiums the same, they may lose significant revenues on renters and be inclined to raise prices across all policy holders. This may seem like a great idea, until you own your home and are paying higher premiums to cover the losses of renters.
These comparisons are made throughout many different factors including those with sports cars pay higher premiums than those that own minivans for obvious reasons. Although the system includes complex algorithms to account for different factors, it ensures that you, as a policyholder only pay premiums according to your risk profile.
According to the Consumer Federation of America (CFA), as a renter you will pay on average 7% higher premiums, yet the rates can be quite significantly higher. For example, according to CFA data, in Louisville, Kentucky policyholders of renters auto insurance from Farmers Insurance paid an average 47% more than home owners car insurance.
Get the Discount, Avoid the Higher Cost
In the end, as a renter you want to avoid the higher premium costs, and as a home owner you will want to ensure you are getting the homeowners auto insurance discounts.
Renters Car Insurance
As a renter you will need to be thorough in your research for finding the cheapest auto insurance in your city. Rates can differ significantly with insurers charging anywhere from 3% to 19% on average more for renters car insurance. However, within the CFA’s study, it uncovered that GEICO did not charge renters more than homeowners. Remember to use an online comparison tool like CheapAutoInsurance.net and get as many quotes as possible.
Homeowners Auto Insurance
If you recently purchased a home, now is the time to conduct research, find cheap homeowners car insurance and possibly change insurers to get the discount so many other homeowners are enjoying.
Although there is a call to put a stop to differences in auto insurance like this one, it is something that would raise the premiums across every driver. This is an aspect that many including insurers do not want.