Risk Profiling in the Auto Insurance Industry

Auto insurer actuaries are able to amass a vast amount of statistical data to accurately predict a person’s propensity for having an automobile loss—and they set rates accordingly. Risk profiling is employed by all the automobile insruance companies, and is the one area where the consumer has some control—to improve their risk profile and lower their automobile insurance premiums over their lifetime. The premium charged can vary depending on many factors that are anticipated to affect the cost of future claims.
Examples of factors are:

  • Characteristics of the automobile – Age, manufacturer, value, safety features (anti-lock brakes, anti-theft devices, adaptive cruise control, lane departure feature) all matter to insurance companies.
  • The coverage selected – Liability limits, uninsured motorist, collision, comprehensive coverages vary significantly depending on your willingness to take on more risk.
  • Deductible you select – Higher deductibles mean that the driver pays more to repair his vehicle before the insurance kicks in, thus reducing your premium.
  • Profile of the driver – Age, gender, marital status, place of residence, driving record all help determine your ultimate premium.
  • Usage of the car – Do you commute to work, use your vehicle for business or pleasure only?

Before the dawn of advanced technology, determining an auto rate was fairly simple: look at the prospect’s age, driving record, location and type of vehicle. Today, because of advances in data technology, automobile insurance companies can pinpoint more exactly how much to charge based on our individual risk profile. The following are individual risk factors that will determine if you are charged more or less money by your auto insurance company:

  1. Credit Rating – Study after study indicates that a person’s credit rating can determine their propensity to have an accident. The best automobile insurance companies insure drivers with the best credit scores.
  2. Payment History – Similar to your credit history, if you pay your automobile premiums on time, you may be able to reduce your premium.
  3. Age – Around 30% of all vehicle injuries in the U.S. are caused by drivers aged 15-24. Those in the 16-19 group are three times as likely as those over age 20 to be in a fatal car crash. Motor vehicle accidents are the leading cause of death for teenagers in the country. For this reason, drivers age 16-19 pay 50% more on average for automobile insurance than drivers aged 20-24. As drivers age, their rates typically decline until, by age 55, drivers can enjoy senior discounts.
  4. Driving Record – Driving history has shown to be an accurate indicator of future claims. Drivers with a clean driving record enjoy discounts not granted to those with tickets or accidents.
  5. Gender – Men, especially young ones, are much more likely to be involved in automobile accidents than women, regardless of their age. For this reason, men pay significantly more for their automobile insurance over the years than women.
  6. Nature of Employment – Drivers who use their cars for business, like real estate salespeople, pay higher rates than drivers who work from home. While it is difficult to quantify, drivers who work in high stress jobs for long hours, like doctors, tend to have more accidents than those in low stress occupations.
  7. Vehicle type – Cars that are more expensive to repair or which are most likely to be stolen carry higher rates than others. Some high performance automobiles are very difficult and expensive to insure. Cars with extra safety features may be subject to additional credits.
  8. Location of your home – Drivers who live in high risk urban areas of the country and those who live in high-crime neighborhoods where their vehicles are more likely to be stolen or vandalized, pay higher rates than others.
  9. Marital Status – Married people tend to be better drivers than singles and pay lower premiums. In many cases, the multi-car discount kicks in, thus reducing your premium.

Armed with this information, there are many ways you can reduce your automobile insurance rates by improving your risk profile. There are no quick-fix solutions but rather improving your risk profile is a long-term operation.

Talk with us to understand the wide array of options for automobile insurance. You are very likely subject to credits about which you were unaware. We represent many different insurance companies and can design a custom-made automobile insurance policy to fit your specific needs.

David C. Backer
David C. Backer

David C. Backer, of Gracey-Backer, Inc., an Insurance Agency in Delray Beach, Florida specializing in All Lines of Malpractice, Professional and Personal Insurance. He can be contacted at (561) 404-5745, or at david@gbifl.com.

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