During earlier days when computer was not there, insurance of auto was subjective and personal. The agent of insurance was supposed to talk to the main he is acquainted within the main office and then he called in for some favors and the best rates were offered to their customers by them. The drivers below the age of 25 especially the males, were charged the maximum whereas young females were thought to be at lesser risk were charged quite less.
But, now in the age of computer the companies of auto insurance have huge database of claim records and accidents. When number-crunching such records they can check and let you know what kind of individual is going to be a better driver and what kind of individual are more prone to be at risk of an accident. This technology of "Black Box" provides them insights into the behavior and background of the individuals for whom they believe the auto insurance to be paid more by them. For instance, individuals carrying the least limits of liability are usually at a higher risk than the ones who are carrying the minimum of 50/100 ($50,000 per individual, $100,000 every accident). There has been shown by the statistics that the ones having bad scores of credit are more likely to get included in an event of accidents.
The minimum liability in Texas, on insurance of auto is 20/40 ($20,000 per individual, $40,000 every accident). Not only this, the minimum damage property is $15,000. So just think, who will make up for the difference in case there is an accident and you are at fault?
The states regulate the auto insurance in majority of the states. But, it is only at the initial level. Tables of exposure, loss ratios and other conjuring words are used by the state, in justifying what the companies of auto insurance wants you to pay. Each time once throughout they will simply to throw you off, will announce a reduction, statewide in the rates of auto. If they do so, just check before taking out money.
Once the base rate is set by the state, the companies individually negotiate with them for adjusting their definite rates, claiming either a worse or a better loss ratio than average. Hence, once the elections get over, the legislation permits endorsements, exceptions and amendments to pull them up to anything the companies of auto insurance can make huge amount of money from.
Many states also permit the companies to set their own rules individually to check who gets charged what. Hence, one company of auto insurance rates a specific driver one way, whereas the other company rates it in a different manner. Those underwriting rules are set by each company.
For determining the rates of auto insurance the state generally gets involved. Later the dice is tossed by the companies between making money for their stockholders and staying competitive. And then, Black box comes, the companies of auto insurance takes a close look of the drivers including the credit score, career, past record, and the city you live in.