Car insurance – what rating factors are most important
- Author Peter Main
- Published May 24, 2020
- Word count 653
Any individual who has had to purchase car insurance may well have discovered huge discrepancies in the various quotations they are asked by different insurance companies. This has historically always been the case to an extent, but even more so given the rise of cost comparison sites online. It is perfectly possible to go to one of the major sites, enter your details and obtain up to 50 or so different quotations. It is not uncommon for these quotations to be anywhere between 200 and 2000 percent different from top to bottom of the scale.
It is often assumed that all insurance companies assess risk in pretty much the same way. This is true to an extent, depending upon how much data they have, and what their experience of risk underwriting is. Different insurance companies will have different levels of expertise in certain geographical areas, regarding certain makes of car and certain individual age groups and demographics. This experience will influence their understanding of risk, and may differ widely from other insurance companies will have more on this experience in these areas.
Rating a risk is not simply a mathematical formula, although in theory this is what it is based on. Whilst an insurance company will assess a risk based on their own criteria, and then load it by a small margin to make it profitable, this is only half the story.
There has always been a theory and a practice as to how insurance companies rate risks. The theory is that they will evaluate a risk, essentially into a percentage figure, which is what they charge as a premium. In reality, it is also very much about what they can charge, or get away with, in order to win the business and make money out of it.
This has intensified hugely the transition to lots of car insurance being done online, where it is considerably easier for the insurance companies to link it to other types of insurance, and to various utility billing accounts, credit cards or loan financing. This means that insurance companies can make strategic alliances with other companies in order to obtain business which is to their mutual benefit.
Insurance companies will often undercut each other in a way that a lot of businesses will in order to attract customers, and hope that customer retention over time will allow them both to increase their premiums and keep the business without customers moving elsewhere. Whilst that is a fairly basic principle of how insurance companies work, it is much harder to do it online, it was much simpler by paper. It is very easy a customer to switch insurance companies nowadays, and this has certainly eroded a lot of the loyalty felt to companies previously.
The other important factor is that insurance companies make a lot of their profits from investing premiums, as opposed from pure underwriting profits. With most types of insurance, premiums are paid up front and claims paid much later on. With car insurance, the really big claims tend to be liability claims, which are notoriously difficult to settle, and normally take several years to agree upon.
This isn't necessarily insurancers dragging their feet, although this can happen. With liability claims, it often takes a very long time to really assess damage caused to an individual, and how that damage has impacted on their lives, and in what ways.
What this also means is that for that for a period of time the insurancer by and large will not have to settle a claim. They might make an interim payment, but that would normally be at their discretion. This means that companies can hang onto the premiums for quite a long period of time, before any claims have to be paid. This allows them to earn significant investment income, which they can then use to offset their level of rating in order to attract the business that they need to.
Peter Main is a freelance writer who specialises in all types of personal finance, loans, car isnurance and car financing. He has a special focus on the benefits of leasing cars from major manufacturers such as Honda, and the benefits of leasing a car as opposed to buying a new one.
Article source: https://articlebiz.comRate article
Article comments
There are no posted comments.
Related articles
- Google SEO Updates 2024 Jackyan
- Cost-Effective Gardening: Tips for Enhancing Your Garden on a Budget
- Keeping Your Garage Door Running Smoothly: A Guide to Drum Replacement with GarageDoorMagnolia
- When Your Garage Door Goes Rogue: Off-Track Repair in Tacoma and Seattle
- Same Day Service? Kiki Garage Door Repairs Your Garage Door Fast in Sammamish, WA
- Cost-Effective Strategies for Business Owners in 2024: Maintaining Efficiency Without Reducing Staff
- Navigating Compliance for Personal and Professional Contributions
- Smart Savings: The Benefits of Buying Out of Season
- Youtube To MP3 Converter -- Free
- The Benefits of Outdoor Training
- A Fashionable, Artistic, and Modern Adventure: Three Days in Paris
- Why buy stock footage on mediaCastpro? Here are the benefits.
- GoPDF An Online PDF Editor Releases Mobiles Apps Compatible with iOS & Android: A Faster Solution for PDF Editing
- The Best AI Logo Generators in 2024
- How to prepare for a house clearance, a few tips from experts
- Adapting to Rising Parcel Rates in 2024 with Business Central and Order Ship Express
- Not All LED Lights Are Created Equal
- Zoviz Launches New Solutions Day by Day to Users as An AI Logo Maker
- Campervan Maintenance: All You Need to Know
- Fighting the Silent Epidemic: Safeguard Your Child's Future with Vitamin D Screening at KinderCure | Dr. Garima Mengi
- 5 Inspiring Stories of Women Who Achieved Gorgeous Lashes with Careprost Eye Drops
- Is Your Finance Strategy Ready for ERP Software?
- A Beginner's Guide to Starting a Career in Web3
- The Vital Role Of The Courier Industry: Connecting People, Businesses, And Communities
- Learning From Successes And Setbacks: The Importance Of Post-Bid Analysis In Professional Bid Writing
- Music And Identity: Exploring The Role Of Music In Shaping Culture And Identity
- Demystifying Dental Myths: Separating Fact From Fiction
- Expert and Little Known Tips for Limestone Floor Maintenance
- Explanation of how to improve the quality of low-resolution videos
- Do Compelling Marketing Pictures Unlock Sales Potential?