Factors that Determine Insurance Rate


The demand for motor insurance policies has been on the rise as a result of developments in the commercial trucking industry. Consequently, the insurance industry has been improvising ways on how to charge for the policies which involve the determination of the insurance rate. Insurance rate refers to the amount that is demanded from an individual to acquire an insurance cover, for a commercial truck, in this context. There are many determinants of the insurance rate such as age, number of hours on the road, gender, tickets, and accidents amongst others. The discussion of this paper is aimed at explaining how the insurance industry uses the various factors in the process of determining the insurance rates for commercial trucks and the research that has been conducted to warrant the rate set.


One of the most important factors that the insurance industry may consider in insurance rate determination for trucks is the driver’s age. This is because age is considered to be a determinant of the level of experience. Research on the age of truck drivers helps the insurance industry to determine the degree of risk that is likely to be in a certain age group. For instance, truck drivers at their youthful stage are considered inexperienced and hence their probability of them filing a claim is very high. Statistics have shown that male truck drivers whose age is below 25 years are the riskiest group. This makes the insurance firms demand a higher insurance rate from the truck drivers in this age group.

Research shows that age is an effective determinant of the rate of interest (Robert, Darren, Sally, Niel p 3). This is because it meets all the principles of classifying the risks involved. For instance, age is cost-effective in that there is no major process used in using data on age to determine the rate. There is also a general public acceptance of age as a determinant of the rate to be charged. Therefore in setting effective insurance rates for truck drivers, their age groups will be highly necessary.


About gender, females usually pay a lower insurance rate compared to males. The scenario is not different among commercial truck drivers. This is because the male truck drivers are considered to be more aggressive and hence the probability of them being involved in an accident is high, as opposed to female truck drivers. Even though the safe index greatly varies over time, female truck drivers are considered to be more cautious in their driving. The male truck drivers usually pay a 40% higher premium than their female counterparts.

The insurance industry uses the information on gender and age to calculate the gender-age coefficient for truck drivers (Chui, Chweng & Ping p.5). This coefficient enables the insurance industry to rate the individual truck drivers, to determine the insurance rate that will be charged. The coefficient is calculated both in relation to gender and age for the truck drivers. If the coefficient is high, then it means that the degree of risk is high and hence a high rate will be charged. From the table below it is evident that the male truck drivers have got a higher coefficient than their female counterparts. The difference ranges from 9% to 19% for the older and younger truck drivers respectively.

Gender pricing coefficient age for truck drivers Male Female
Below 20 years 1.89 1.70
20-25 1.74 1.57
25-30 1.15 1.04
30-60 1.00 0.90
60-70 1.07 0.96
Above 70 1.07 0.96

According to Robert et al, information on age and gender is mostly used in insurance rate determination for drivers, particularly for truck drivers, since it is a relatively costless statistical measure of expected loss costs.’ (p3).

The traveling mileage of trucks

This refers to the frequency with which a truck is used. If it’s often, it means that there is an increase in the probability of an accident occurring. Since commercial trucks are used mainly for business purposes, then their mileage coverage tends to be higher than other automobiles. More usage of the tucks means that the mileage covered will be high. If the mileage is high then the higher the insurance rate that will be paid. This means as in the case of the trucks since they are mostly involved in conducting business activities, their mileage tends to increase. It also follows that the risk of accidents is high.

Research by Quality Planning Corporation found out that there exists a strong relationship between the mileage and the number of claims made to the insurance company (para.1). This makes the insurance company charge a higher rate. The research found out that the highest mileage category (commercial trucks) that is in the range of above 60,000 miles had claims which were 28% more than the average category which ranges between 50,000 and 60, 000 miles annually (Kunert, 2003, 207).

Therefore insurance companies should effectively consider the mileage of commercial trucks in determining the insurance rate to be charged, particularly on trucks. The insurance firms should provide incentives to the individual truck drivers seeking cover towards ensuring that they get an accurate prediction of the mileage covered. According to Quality Planning, the insurance company should use the mileage to develop bands. In order to warrant the rate set by use of the mileage, the band used should not be very large. By developing a more lean mileage band the insurance industry is able to develop a more accurate rating system. As illustrated in the table below, as the mileage increases, the number of claims increases which increases the insurance rate. This is illustrated in the table below.

Mileage band for commercial trucks The average cost of claims $
0-30,000 105
30,001-60,000 109
60,001-over 80, 000 135

Driving violation

If an individual truck driver has got a bad driving record, the possibility that the insurance company will rate that individual as a poor risk is high. This translates into an increase in the insurance rate. In US, if a driver violates the traffic rules, one is issued with a ticket. According to Adam, tickets have the effect of increasing the insurance rate. This is due to the fact that the insurance industry considers such drivers as being of a higher risk degree to insure. The insurance company is statistically collected in charging a higher rate to these drivers. The increase in the insurance rate is aimed at ensuring that the insurance company is in a position to completely offset the claim. This is due to the fact that tickets increase the probability of the drivers filing more claims. The insurance company usually examines the driving records annually during the renewal of the insurance contract. This means that the effect of the tickets on the insurance rate is usually in the long term. For every additional traffic ticket, the insurance rate increases.

Some of the truck drivers violate the stipulated duration for the truck driver. Drivers who exceed the stipulated time on the road are usually affected by fatigue, a phenomenon that triggers the occurrence of road accidents among trucks. This becomes a crucial factor for insurance firms to consider while determining the insurance rates to impose on commercial trucks. The more time truck drivers spend on roads per session, the higher the insurance rates are likely to be imposed. This was in accordance with a study conducted by Kunert (2003, 207) on driving duration among truck drivers in Europe.

Number of accident

Insurance companies use information related to the driving record of the individual truck drivers in determining the premiums to be charged. The number of accidents can increase the insurance rate. This is usually so especially if there is a claim filed to the insurance industry during the same policy period. The insurance industry will usually raise the rate for truck drivers who have had costly claims in their policy. The increase in the rate as a result of the number of claims is to enable the insurer to recoup the cost incurred during the claim payment.

Place of residence

Insurance companies also use details related to a truck driver or the owner’s place of residence in determining the insurance rate. Truck drivers who reside in urban areas pay a higher rate. This is due to the increase in the level of risks such as theft increasing the number of claims. According to statistics, it is evident that approximately 80% of the accidents occur within a range of 25 miles from the drivers’ residence. Place of residence also determines the probability of the vehicle being involved in the collision (Factors affecting auto insurance rate).

Type of vehicle

The type of vehicle is also a factor used by the insurance industry to determine the rate to be charged. This is usually about the model of the vehicle and history related to the number of claims made against a particular model of a vehicle. The model of the truck determines the nature of safety features. This means that a vehicle that has high standard safety features such as those fitted with airbags, seat belts will be safer. Most commercial trucks however lack most of the standard safety features such as airbags, which are considered more for luxury vehicles than commercial vehicles such as trucks. This tends to increase claims on bodily injury, in the case of trucks, hence varying the insurance rates for truck drivers from the other ordinary drivers. Vehicles of large size are charged a lower insurance rate.

The amount of coverage purchased

If the owner of the vehicle has an additional insurance policy that covers other risks other than the usual, the insurance rates tend to be higher. For instance, in the case of a truck driver, having liability coverage will result in an increment in the insurance rate charged. There is a variety of liability coverage that the owner of a vehicle can own. These include covering the medical bills of the policyholder and for all parties involved in the accident. Liability coverage will also include any damage caused by the vehicle to the property. Commercial trucks are prone to damages in the course of their operations. In order for the insurance company to be able to cover all these liabilities, the rate charged has to be relatively higher.

Number of parties involved

Insurance companies work on the concept of pooling of risk. This means that for an insurance firm to start offering policies that cover certain risks, the risk must meet certain characteristics. One of them is that the risk must be geographically spread and involve a large number of parties. Therefore the number of commercial trucks operating in a given geographical area will be a factor that will feature in determining the insurance rates. However, if a risk is only experienced by a small number of trucks and involves a large amount, then an insurance firm will charge a high rate.

Roads and highways status

The status of roads and highways in a particular region or country also influences the determination of insurance rates for commercial trucks. Poor roads mean that safety on such roads is no longer guaranteed. For instance, the case study between roads and highway status in America and Mexico indicates that the former has got smooth well-maintained highways, contrary to the latter. This means that if trucks from Mexico were to be allowed on the American highways, then the insurance rates for the trucks would be higher than at home. The study also noted that insurance rates were on the rise as a result of rising liability demands in the trucking industry (Stinson, 2007, para 3).


Insurance company plays a major role in mitigating the effect of risk in the trucking industry upon its occurrence. In order to do this, the policyholder must pay some periodical premiums. This means that the firm has to consider various factors in order to determine the rate to be charged effectively. This would avoid instances of an under or over cover occurring.

Despite the determination of the insurance rate, there is a possibility of increment in the trucking insurance rate, particularly among commercial trucks. These factors have been statistically proved to be efficient in determining the insurance rates for trucks. This is due to the existence of a higher degree of correlation between the factor and the rate. Age and gender of truck drivers are considered as the most cost-effective factors since it is possible to determine the coefficient of correlation and charge the insurance rate according to the size of the coefficient. A high coefficient signifies that the degree of risk involved is high.

Works cited

  1. All insurance info.org. Factors affecting auto insurance rates, 2007.
  2. Brown, L.B, Charter, D., Sally, G. & Neil, H. Age as an insurance rate class variable, University of Waterloo, 2004
  3. Emilio, V., Chu-Shiu, L, Chwen-chiu, L. & Ching Ping, Y. Premium determination of Taiwan Insurance, Taichung: Feng -Chia University, 1999.
  4. Kunert, U. “The taxation and insurance premiums of commercial vehicles in Europe: Calls for harmonization.” Economic Bulletin 40.6 (2003): 201-208.
  5. Quality planning corporation. Do low mileage drivers deserve better insurance rate? New York: Market wire incorporated, 2009.
  6. Stinson, Carl “The Impact of NAFTA on Trucking.” The Impact of NAFTA on Trucking. 2007. EzineArticles.com.

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