Insurance is a protection plan that involves a group of people whose premiums are gathered into a common fund. When someone in the group suffers a loss, such as a serious car accident, their insurance company accesses the premiums in this fund to cover claims arising from losses. In a year when there are many claims, or when settlements are especially high, everyone in the group will have slightly higher premiums the next year to ensure that the fund is full.
Premium rate calculations are also influenced by changes in government regulations and taxes. Also, the costs of court awards, towing fees, repair costs and insurance fraud all have an impact on how premiums are determined.