Whose risk is it? - 12 Nov 2009 15:21
Insurance is a risky business, quite literally, where you, as the consumer, pay someone else (an insurer) to bear the risk of damages that could happen to your car. The degree of the risk determines the amount you pay in the form of monthly premiums.
The risks you take when owning a car are theft, damage caused by accidents, fire damage and damage you cause to third parties and their property. The degree of risk changes for each of these situations and relates the amount of uncertainty in each. For example, if there is more chance of you being involved in an accident that your car being stolen, your degree of risk is less for theft but more for accidental damage.
Insurance companies have to quite accurately predict or calculate the degree of risk in each situation to set an appropriate premium. An actuary will work out formulas to calculate the degree of risk based on statistics, by looking at age, gender, type of car etc. This will then be compiled into a risk profile for different demographic groups.
Statistics show that women are involved in less accidents and that more men are convicted of driving under the influence, which makes them a lower risk demographic group.
Exclusions to your car insurance policy mitigate the amount of risk the insurer takes on itself. If you are a young male driver who owns a sports car, your insurer may calculate that the degree of your risk is too high in all quarters for you to be insured by them. If insurers don’t exclude certain risks because of their likelihood, they’ll be running at a loss.
The risks you take when owning a car are theft, damage caused by accidents, fire damage and damage you cause to third parties and their property. The degree of risk changes for each of these situations and relates the amount of uncertainty in each. For example, if there is more chance of you being involved in an accident that your car being stolen, your degree of risk is less for theft but more for accidental damage.
Insurance companies have to quite accurately predict or calculate the degree of risk in each situation to set an appropriate premium. An actuary will work out formulas to calculate the degree of risk based on statistics, by looking at age, gender, type of car etc. This will then be compiled into a risk profile for different demographic groups.
Statistics show that women are involved in less accidents and that more men are convicted of driving under the influence, which makes them a lower risk demographic group.
Exclusions to your car insurance policy mitigate the amount of risk the insurer takes on itself. If you are a young male driver who owns a sports car, your insurer may calculate that the degree of your risk is too high in all quarters for you to be insured by them. If insurers don’t exclude certain risks because of their likelihood, they’ll be running at a loss.