How Speeding Tickets Affect your Car Insurance Rates

When one thinks of insurance (any kind of insurance), one must think of it in terms of gambling.  If this is the mindset, it makes understanding how rates are set for premiums on various forms of insurance (life, health or automobile) make more sense.  First, let’s get to understanding the mindset.  How is insurance like gambling?

There are two ways to look at insurance as a gamble.  One, you can choose not to carry auto insurance.  Yes, you’ll save upwards of fifty to one hundred dollars per month.  But, if in an accident, you risk losing tens (even hundreds) of thousands of dollars.  The second way is sort of a converse of the first.  You can choose to purchase insurance.  Now, you’re not hoping to get into a car wreck.  You are purchasing protection, if such an unfortunate situation is to occur.  You outlay a (hopefully) small investment, in hopes of saving a huge sum of money, if the unfortunate should happen.

Now that you’re in the mindset of realizing that insurance (or lack thereof) is a gamble, it makes the idea of how rates are set make more sense.  A Las Vegas gambling casino hires people who are called “actuaries.”  An actuary knows exactly, through the manipulation of statisitics, how to set odds for any given gambling game, so the house has just the slightest edge.  If a casino can pull in a profit of one dollar for every hundred dollars gambled (which occurs approximately ten times per second), the casino can make about ten dollars per second, which translates to six hundred dollars per minute, over three thousand dollars per hour, etc.  The smallest profit on a per person basis, can pull in huge revenue for a casino as a whole.  Well, insurance works the same way.

Insurance companies hire actuaries as well.  (Actually, these days, they use actuarial tables.  It’s doubtful if the occupation of “an actuary” even exists anymore).  Their function is exactly the same as that of an actuary (or more accurately, table) in a casino.  The job of an actuary is to decide what behaviors run bigger risks to cutting into profits.  If a person has a clean driving record, and there is nothing in the records to indicate “high risk,” that person will get a better rate from any given insurance company.

However, if a person exhibits behaviors considered “higher risk,” they will pay more.  An actuary doesn’t give one whit about your personality.  (S)he merely looks at statisitics.  The biggest cause of collisions in a car is a loss of reaction time.  This is just plain statistically true.    A recent record of a conviction for speeding tells an insurance company that the driver engages in “higher risk” behavior and is therefore more likely to cost us (the company) more money than those without evidence of such behavior.  It is with this reasoning that an insurance company will choose to raise your rates.  It may not seem fair, but the company doesn’t care about that.  They can back up their claims with statistics.  The insurance company is essentially telling you, “Yes.  We will insure you, but we feel justified to charge you more, because, historically, it has been shown that drivers who engage in your kinds of behaviors (speeding), cost us more money.  You want protection.  It costs you more.”

So, as unfair as it may seem, an insurance company can feel statistically empowered to raise your rates if you get a speeding ticket.  That’s how it works in a world where everything is based on statistics.