Many people don’t realize but car insurers spend awful amount of money on research in order to find the best way of calculating risks and pricing it accurately. Assessing the perils associated with insuring cars better can give a company competitive edge over their rivals. Furthermore, it makes sure that premiums of high risk drivers aren’t subsidized by good drivers and everyone pays their fair share.
Risk assessment indicators are generally proprietary calculation methods used by auto insurance underwriters to determine the likelihood of receiving claims. They usually take some of the information from your credit report and make sense of it with their own formula and rate your risk accordingly. Some companies may be mixing this credit report information with other statistical data relevant to the application.
Why should you care and what it means for you? If the underwriter gets it right, good drivers are rewarded with much lower car insurance premiums and risky ones will have to pay the price. In other words, it helps in fairly pricing policies. Auto insurance risk assessment indicators are going to determine the premium you will be asked to pay eventually. And therefore you may want to know about them. They generally take credit score, how you handle your finances and a few other points.
Automobile insurance companies keep finding new risk indicators like wealth, education, occupation, credit history and so. And this affects the rates of their existing policyholders. As a result, policyholders may lose out in two ways. They lose out when their current insurers’ rates go up and they stay put. Also, they lose if another company reduces their premiums for the type of driver they are because they haven’t taken advantage of these savings.
For a vehicle owner who keeps checking for the best rates and switch wherever necessary it doesn’t matter how a particular insurer calculates their premiums. They just look at the bottom figure and choose the company with the lowest rates for the same coverage. Alternatively, they go with the auto insurer which offers the best vehicle insurance coverage while the prices are similar compared to competitors.