What is the best way to explain how insurance rates are determined for a specific vehicle?

It can be difficult to explain how insurance companies determine rates for a specific vehicle since rating systems differ from insurance company to insurance company. The classification of a car as a sports car, family car, etc will depend upon the definitions set forth by each individual insurance company. Each insurance company has its own vehicle classification system that is typically based upon the Insurance Services Office's (ISO) VIN system or other company proprietary ranking systems.

A simple way from an agent's point of view would be to classify the type of vehicle and then the cost new of the vehicle. For example, if you have an auto, van, truck, sports car, etc. and then the MSRP of the vehicle. From there, you should be able to compare them, but it is not as comprehensive as the vehicle classification systems used by actuaries.

The ISO is a statistical and actuarial reporting group for the insurance industry and they publish a manual used by insurers and agents that rates each vehicle based on its loss history — or its manufacturer's suggested retail price if the model is brand new. The ISO assigns each vehicle a number between 3 and 27 to represent the cost of Collision and Comprehensive coverage. Auto insurers can use the ISO's vehicle numbering system to calculate the car's coverage costs. The higher the number, the more expensive the coverage will be.

Both foreign and domestic private passenger autos are classified as a vehicle type - sports car, high performance, luxury, van, truck, convertible, etc. Each of the following items helps determine a vehicle's classification:

• Engine Type
• Manufacturer
• Body Style
• Engine Size
• Full Model Name
• Model/Series
• Body
• Engine
• Cylinders
• Restraint
• Restraint Indicator
• Anti-lock
• Transmission
• Other Options
• Daytime Running Lights
• Wheel Base
• Class Code
• Anti-Theft
• Curb Weight
• Gross Vehicle Weight
• Height
• Horsepower

Things also taken into consideration are the cost of repairs for a vehicle and the rate at which it is each year. If a car has high repair costs than physical damage coverages of Collision and Comprehensive would tend to run higher. Or if the car is one that is at the top of the list for being stolen each year there is more of a risk for an insurer to cover it and thus Comprehensive rates could be affected by such a factor.