How do insurance companies profit?
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They have good statistics, and based on those statistics, they try to guess how much it will cost to insure all the cars that they have policies for.
Vyer simplified, if they insure a thousand identical cars, and ten of them are totalled in a traffic accident every year, then all the insurance policies will have to cost the thousand owners TOTALLY about the same as it would cost to purchase ten new cars. And some extras, because this is a money making game.
The problem is just that they are NEVER that simple in their calculations.
If you insure against theft and vandalism, it all suddenly matter a lot where you live. It will be cheaper far off from the major cities, and more expensive in…problematic suburbs.
If you insure against damage on other vehicles in traffic…it will depend a lot on your annual mileage.
Want to insure against a drivetrain issue with the car? Will depend on vehicle age and annual mileage. And costs of some types of repairs on the car.
Own something VERY uncommon that, if it happens to need body work will require MONTHS of waiting time…then they are going to have to provide you with a rental for months too…and that will be taken into account.
Is it a historical car? Maybe the policy will require that you also own a daily commuter car, OR it will cost extra.
They also take into account age of the owner. Sometimes the owners sex (because young guys tend to have a more reckless driving style, statistically speaking) comes into play. And they DEFINITELY want to know of you have had a drivers license, uninterrupted, for at least five years.
If you add all of these factors, you end up with a gambling game where the insurance company predicts that “Volvos are damn expensive to repair, but most drivers are very careful with them because they attract a certain clientele” and “we are getting more and more and more vandalism costs in that area, we have to increase the policy costs there, real soon.”
And so on.
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