Insurance premium
Also known as: Premium · Insurance rate · Auto insurance premium · Rate filing
The amount the policyholder pays for coverage, set from the insurer's expectation of loss plus expenses and profit, within rates regulated by each state.
Legal basis
California Insurance Code §1861.05
The premium is the price of transferring risk. The insurer estimates expected losses for the risk class, adds expenses and margin, and adjusts for the individual's rating factors — driving record, claims history (often read from a CLUE report), the vehicle, where it is garaged, coverage limits and deductibles.
States regulate how rates are set, and state rating laws — California's among them — require that rates not be excessive, inadequate or unfairly discriminatory. California goes further with prior approval: an insurer must file and have rate changes approved, and auto premiums must weigh driving safety record first, annual mileage second and years of experience third, with any other factor adopted by regulation.
The limit of static rating is that it prices the application, not the behavior. Two drivers with the same file can carry very different risk, and the premium averages them — which is how adverse selection starts. Signal on actual use lets the premium follow the risk instead of the average.
Frequently asked questions
Why did my insurance premium go up?
Common reasons are a claim or violation on your record, a change in vehicle, address or drivers, a lost discount, or an approved rate increase for everyone in your state and risk class because losses and repair costs rose. Ask your insurer which factor changed.