Insurance Risk Profile – What Influences Risk Profile Rates On Financial Products?
You’ll likely have noticed that when browsing for insurance, whether it be car, home or business insurance, as well as financial products such as service plans, warranties and even medical aids – you’ll never been officially quoted until you’ve had a consultation outlining your exact risk profile by the supplier. While you might enjoy super low premiums, a driver who has had their license for less time than you, a driver with previous infringements etc. may have to pay a higher price for the same product.
We explore how your risk profile may be determined, and what factors cause either a reduction or increase in your monthly premiums.
What is a Risk Profile?
A risk profile is an evaluation of an individual or organization’s willingness to take risks, as well as the threats to which an organization is exposed. A risk profile is important for determining a proper investment asset allocation for a portfolio. Organizations use a risk profile as a way to mitigate potential risks and threats.
“Auto insurer statisticians 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 insurance 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.”
Some factors taken into consideration on your risk profile include:
- 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 coverage’s vary significantly depending on your willingness to take on more risk.
- Excess you select – Higher excesses mean that the driver pays more to repair his vehicle before the insurance kicks in, thus reducing your premium.
- Profile of the driver – Age, place of residence and 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 your individual risk profile.
The same way comprehensive insurance companies work to determine how much of a risk you (as their potential client) would pose is similar to the methods used when taking out financial products such as service plans and warranties. However, a lot more emphasis is placed on the vehicle itself as a risk – things such as mileage, age of car, rate of maintenance etc., will influence your monthly premium.
Source credit: GraceyBacker