There are many factors that have an effect on your insurance rate. Everything from your credit rating, where you live and how far you drive each day will help determine your car insurance premium. While most people are aware of these various factors many find insurance surcharges confusing. While similar to the points systems used by the Department of Motor Vehicles (DMV), insurance companies use proprietary rankings to justify rate increases after a ticket or accident.
Every state issues its own license and every state has a separate DMV which manages a point system that tracks accidents and violations. These points affect your driving record. Point systems vary by state but in the majority of them a certain number of points go on your license for each infraction, if you reach a certain amount of points in a given time period your license is suspended.
Insurance companies also assign points. Using Merit Rating Plans insurers apply surcharge points to your risk profile and use merit ratings when calculating your premium. These ratings let insurers assess the risk that you present as a driver.
Merit rating plans got started around the 1930s. New York created a risk-rating plan, which used accident records to penalize drivers. By the 1950’s almost all insurance companies had developed a risk rating point system, which is still in affect today.
How Do These Systems Work?
DMV points will vary by state but as an example we will look at the system in North Carolina. In this state, if you are assigned 12 points within a three-year period your license could be suspended. When the license is reinstated you are only allowed eight points in the next three-year period.
Points for infractions are different in every state so check with your local DMV for a listing of points in your state. Here are a few examples of the points assigned for common tickets in North Carolina:
• Running a stop sign – 3 points
• Not carrying liability insurance – 3 points
• Reckless driving – 4 points
• Failure to yield to a pedestrian – 4 points
What About Insurance Points?
The points that end up on your driver’s license absolutely affect your insurance premiums. Insurers run you license on a regular basis and will be aware of any tickets or accidents. Once this information hits their database you can usually expect a premium increase.
Each insurance company uses a proprietary rating algorithm so it is impossible to tell exactly how points on your license will affect your insurance premium. Insurers tend to be highly secretive about their rating systems but must disclose all surcharges on your policy if you request the information. In most cases they will assign points based on the severity of the offense and if you are found at-fault in an accident.
In some states, insurance rates and surcharge points are regulated. In Massachusetts, an at-fault accident will result in three surcharge points and each point will raise your insurance premium 5 percent so for a small at fault accident your rates are going up 15 percent. These points can quickly add up to serious money if you have a number of tickets on your license.
Again, each state has different laws and every insurer assigns points and penalties differently so familiarize yourself with your state laws and request a surcharge chart from your insurer.
Finally, the best way to avoid insurance surcharges is to drive safely. If you feel you have been unfairly surcharged it is possible to ask your insurer to review the premium increase and make your case as to why the increase was unjustified.