Many people don’t realize but companies spend awful amount of money on research in order to find the best way of calculating risks and pricing policies accurately. Assessing the perils associated with insuring vehicles better can give them competitive edge over rivals. Furthermore, it makes sure that good ones don’t subsidize premiums of perilous drivers and everyone pays their fair share.
Risk assessment indicators are generally proprietary calculation methods used by car insurance underwriters to determine the likelihood of receiving claims. They usually take some of the information from a credit report and make sense of it with own formula and rate the exposure accordingly. People may think that this isn’t something they should care about but its relevance will be clearer as you read it through.
Some companies may be mixing this information with other statistical data relevant to the purpose like how many people with low scores submitted claims in the past in comparison to people on the higher end of the scale. Probably actuaries have a field day with various combinations and try to come up with meaningful readings that can be used as actionable intelligence.
It is all about predicting the future claims these days that sometimes past history can be left in the back-burner. In another words, an applicant with clean financial trail, good education and safe zip code can pay cheaper premium even with a small claim a year ago than someone from a poorer end of the town with one or two money problems but otherwise perfect driving record.
If they get it right, good drivers are rewarded with much lower rates and bad ones will have to pay the price. In other words, auto insurance risk assessment indicators are used to determine a fair premium for everyone and therefore you may want to know about them. They generally take credit score, look at how you handle your finances and include a few other factors.
They keep adding new risk indicators like wealth, education, occupation, credit history and so and this affects the rates of existing policyholders. As a result, customers 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 prices 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 deal and switch wherever necessary it doesn’t matter how a particular carrier calculates premiums. Coverage being the same, they just look at the bottom figure and choose the lowest quote. Alternatively, they go with the best coverage while the prices are similar compared to competitors.