If car insurance companies all provide the same coverage why do the rates they charge vary? Many car insurance companies use a system of tiers to rate the risk drivers present from very good to very bad. Some companies have many tiers and some simpler systems. The most common is a three tier system which rates drivers as preferred, standard or substandard. These companies basically offer three rates for the same coverage.

Car insurance companies with more tiers can make finer distinctions between drivers and the risk level the driver is determined to present to the company. The drivers who are rated as a lower risk will always get better car insurance rates. However, the more tiers a company uses the more rate levels that company offers so if you have some indicators of high risk but not many indicators of high risk you may be able to obtain a better rate from a company that uses more tiers.

What determines which tier you are in? It is all about how likely the car insurance company believes you are to make a claim. What elements do car insurance companies look at to determine the risk of you presenting a claim? Some elements of risk are obvious: your driving record, how many accidents you have had recently, how long you have had insurance, how many insurance claims you have made in the past and, how many miles you drive.

Other factors are less obvious. For example your risk determination may be affected by your age and gender, your health history, what state you live in, whether you are married and even your credit rating may factor into the company's evaluation of your risk level.

Does the size of the car insurance company affect their rates? Smaller companies certainly have lower administrative overhead and most likely spend a lot less on advertising. However larger companies benefit from economies of scale so it seems to balance out the costs of offering car insurance.

Almost all companies offer multiple car discounts and a discount if you purchase your car and homeowners insurance through their company. Many companies offer good student discounts and lower car insurance rates if your vehicle has anti-theft devices or safety features like airbags.

The difficulty in determining which company may offer the best car insurance rate for your unique profile is that the insurance companies do not publish their rating factors so you just have to apply and see how they rate you.

If you believe you fit into one or more of the high risk factors or if you are a good student or have multiple cars or homeowners insurance you definitely should shop around for car insurance rates. You could shop rates by calling multiple companies; you could get an independent agent who represents several companies to get you rate quotes; but the internet is the easiest way to compare rates. You make one application online and let the websites that offer comparison rates do all the work for you.