The auto insurance risk selection system is a method where vehicle insurers decide whether or not they will insure an individual and the insurance premium that they will be charging the individual with. Depending on how state jurisdictions implement it, the insurance premium will be determined by the insurance company that must be within the framework of government regulations. It could also be mandated by the government itself. Most of the time, insurers are free to set the price on physical damage coverage than that of the mandatory liability coverage.
If some state laws do not govern insurance premiums, then everything will be based on calculations of an actuary that will be based on statistical data. Several factors will come into play affecting the premium that is known to have significant impacts on expected costs of future claims. These factors are the characteristics of the car in question, the chosen coverage whether deductible, limit, or covered perils, the drivers’ age, gender, and driving history, and the overall frequency of the usage of the car, whether it is used for commuting to work and the estimated annual distance driven.
Before, the conventional methods for determining the costs of auto insurance mainly involves gathering important historical data from personal interviews together with the written application that is completed by the applicant. The insurance company can also reference the applicants’ public driving records from the Bureau of Motor Vehicles. The data is a result of the applicants’ classification to an actuarial class where insurance rates are designated based on the insurers’ experience. Factors directly affect the classification to a particular actuarial class and risk level. It includes age, sex, marital status, driving history records and the residence location.
Any changes of these factors may result to charging a different premium if the change is significant enough that resulted in different actuarial classes and risk levels for certain variables. The current insurance rating system also supports attractive discounts and surcharges in certain usage of the vehicle, its safety systems and the type of driver. These safety systems are all those safety equipment in the vehicle like airbags, anti-lock brakes, theft control devices passive system and the general alarm system. Drivers in this aspect considered for getting discounts are the good student, the accident-free safe driver, and the senior driver fleet drivers in the case of applying in groups.
In usage-based insurance, the conventional rating systems are essentially based on the past-realized losses and past records of other drivers with roughly similar characteristics. These days, electronic systems are made known where the actual driving performance in the field of any driver is directly monitored and communicated to the insurance company. It will then assign the driver into a risk class based on his driving behavior. In the United States alone, there are auto insurance programs where it initially gives drivers a customized insurance rate that is based actually on how, how much, and when their car was used. The driving data is immediately transmitted to the host insurance company through an on-board device. Here, it will be known if the subject car is driven less often in less risky ways and at less risky times of the day. Applicants can be awarded with big discounts with this program.
The advent of new risk selection processes can be made patentable to a greater or lesser level, and it all depends upon the different patent laws of various countries.