When we use the word experience in short term insurance terms such as car insurance we are mainly referring to the record of losses an insurance company had to pay out over a specific time, usually a year. Experience can also refer to the loss record of a specific insured person or a specific class or group of insurance – examples are the experience with female drivers, male drivers or drivers in a certain age group. Insurance companies will also keep statistics classified by the type of risk or peril such as theft, carjacking, fire, storm damage and accident damage.

This experience forms a very important part of the statistics used by actuaries to calculate insurance premiums and is referred to as the experience rating. The experience rating has the major influence when it comes to the determination of individual car insurance premiums. As an insured person your own insurance experience record will also play a role in your insurance premium, the claims you had in a previous year will influence your premium for the new year. If you had no claims it will have a positive effect on your premium.

The system of no claims bonuses is based on the experience rating. A no claims bonus system helps with the advertising of car insurance. It also discourages drivers to make small claims; in turn, making insurance more affordable for everyone.