Auto insurance risk selection is how insurance agencies determine whether or not to insure a person or what insurance premium to charge that person. The jurisdiction that the vehicle is being insured in may or may not affect the insurance premium because of a government mandate or a specific framework created by the insurance company to fit the regulations set by the government. The insurer looks at the vehicle, the driver and the coverage.
The type of vehicle is looked at by the insurer to help determine the auto insurance premium: the age since production, the manufacturer, the model and the value of the car is taken into account. An older car might negatively affect the premium, but an older car of a trusted model and manufacturer might balance the premium out. The value of the car positively affects the premium in that the more valuable it is, the higher the premium will be.
Safety equipment like airbags and anti-lock brakes can provide a discount on the premium. Passive threat control devices such as The Club and car alarms could reduce the auto insurance premium as well.
The type of driver will affect the auto insurance premium in these ways: age, gender, marital status, driving record, violations, at fault accidents and place of residence. In Canada, those over 25 have a discount on premiums because they are an older driver. Previous driver training also provides a discount, and being female and married help for a greater auto insurance discount, too. The more violations, at fault accidents and a not so clean driving record will negatively affect the premium. A clean record of driving will provide a discount. Surcharges will apply if the vehicle is used for business purposes.
The most recently applied idea in auto insurance, even if it is an old idea, lets the characteristics of each driver set the premium on a monthly basis. The insured car is monitored electronically by the insurance company in order to gauge the auto insurance by month for a driver. For example, if a driver were to drive short distances at fast speeds, the premium might be higher as the insurance company assigned the driver to a higher risk class for that month. This is called usage based insurance and is currently offered in Germany, some states in the U.S., South Africa and Japan.
Some drawbacks to usage based insurance is that the customers’ privacy may be infringed because of the continuous use of GPS to track and monitor the vehicle and that prepaid insurance charges for future rather than past risk. A distance-based system might not easily distinguish between highway and suburb driving, and the amount of speed used may make the premium higher even if the insured drives safer than a slower driver.