One of the most frustrating things about shopping for auto insurance is comparing quotes across different companies. After all, if you try to purchase the exact same coverage from two different carriers, you'd expect the price to be almost equal—much like buying a loaf of bread from two rival supermarkets. Why, then, can your quotes be so dramatically different from one company to another?

The answer is actually quite simple. To understand why this phenomenon occurs, you need to understand how insurance companies do business and how they calculate the risk of paying a premium.

Cost of Doing Business

One of the key determining factors in your auto insurance quote is the company's cost of doing business. Simply put, the process of offering insurance coverage costs money. Agents need paychecks, customer service personnel need to be trained, and premiums constantly draw from the company's cash reserves. They also need to show a modest profit.

It is difficult to balance all of these financial liabilities—particularly when they are constantly changing. Also, the structure of the insurance organization can dramatically change their operating costs. For example, some insurance providers rely almost entirely on the Internet to solicit customers and provide service. Their operating costs are lower than a company with a more traditional structure.

The tool that insurance companies use to balance this complex financial equation is their premium. For example, with larger providers, a five million dollar deficit could be remedied by raising every policy holder's auto insurance by a few dollars. Conversely, in a year of good fortune for the company, they could lower their premiums and still show the required profit. Over time, these adjustments can create significant differences between competing insurance companies.

Assessment of Risk

The other critical factor in determining your premium is the method by which insurance companies calculate risk. Risk, in insurance terms, is the likelihood of a customer filing a claim on their policy. It is also the average cost of that claim.

Complex mathematical models are used by companies to accurately assess risk. Each company uses its own method—however, certain factors almost always influence the calculation, such as these:

• Age
• Model of vehicle
• Driving record
• Marital and family status

Because these models are not standardized, you might be in a different category of risk in one company as compared with another. Your quoted premium will change as a result.

While it might seem like your premium is an arbitrary number set by the insurance company, there's a legitimate reason that your premium might differ from one company to another. Knowing the reasons why might not change your price for insurance, but it'll help you make sense of it. For more information about auto insurance quotes, look online and compare premiums.