Risk Selection For Auto Insurance

As we know insurance is a risk management tool for the insured person or entity. For example when you purchase a motor insurance policy for your car, you are protecting yourself from financial losses due to damage or loss of your vehicle, medical costs post a car accident, and any legal liabilities for 3rd party damages you may be held liable for. Similarly insurance companies also carry out a basic risk assessment procedure to determine the extent of risk a driver and his vehicle may be exposed to and whether or not to cover him with insurance policy. This risk assessment also helps the insurance company the rate at which they would offer the insurance policy to the intended customer. Some of the factors that are considered in this risk selection process by the insurance companies are given below:

- Vehicle: The age, model, value and the manufacturer are the main determinants in this category of the vehicle risk selection process. Newer cars are perceived to be in better running condition and hence considered less liable to malfunction causing an accident. Moreover, the older vehicles are perceived to have a higher maintenance and repair costs. Hence insurance companies may charge a higher premium for older vehicles. The types and models of your car may also affect your car insurance premium. For example if you own a sports car, it may be perceived to be of higher risk due to the high speeds it is likely to be driven at. Therefore, these cars may attract a higher premium rate.

- Driver: The main risk determinants in this category are the age, sex, marital status, historical driving records, and traffic violations. These determinants are largely derived from various studies made by insurance companies and other social agencies. For example, statistics show that drivers between the age of 16 and 24 years of age have a much higher rate of accidents than those between 30 and 45 years. Also it is known that men are much more prone to speeding than women. Historical data analysis also shows that married people who have the responsibility of family are more cautious and less prone to vehicular accident than their unmarried counterparts. Hence many of these social and behavioral factors affect your premiums of your car insurance.

- Aftermarket parts and equipments: If you have any aftermarket parts or equipment added to your car special mufflers, spoilers, skirts, engine headers, Nitrous Oxides, turbo chargers, low profile tires, limited slip differential or engine modification chips, your insurance premium rates may increase substantially. This is because these equipments are not a part of standard production and may affect the performance of the car causing the vehicles to malfunction. In fact many of these parts are not included in general motor insurance policies and you may need to purchase special policies to cover your modified vehicle.

You can take several measures to ensure that you fall in a low risk category for car insurance companies. While it is not necessary to get married just to get a lower insurance premium, you can certainly practice safe driving and maintain your car properly to get a more affordable car insurance policy.