How your car insurance
premiums are calculated
PRIVATE CAR INSURANCE - RATING
Car Insurance is a pool or 'common fund’ into which
the car insuring public pays a premium commensurate with the
risk or their car to the fund - basically, the higher the
risk the higher the car insurance premium.
It is from this pool or fund that insured losses are paid
as Claims so that the loss falls lightly upon the shoulders
of the many rather than heavily upon the shoulders of a few.
These principles apply as much to car insurance as any other
class of insurance, and it is the duty of car insurance underwriters
to assess the risk factors which must be taken into account
and to decide the appropriate premium and terms for the insurance
on the basis of these factors. Computerized car insurance
systems found on the Internet self underwrite and assess the
premium from rating tables held on the computers rating database.
Consequently there are many underwriting exclusions from the
standard model that Internet car insurance systems are based
around, and these customers will need to approach a specialized
car insurance broker to find cover.
The Car Insurance underwriter now has at his
disposal the statistical experience of his company and modern
computerized systems have greatly expanded the range and amount
of data available to the underwriter or computer quotation
system in making underwriting and premium decisions regarding
a particular car insurance risk. See Dat sources below.
When underwriting non standard risks which fall outside the
online system standard capabilities, the specialist car insurance
underwriter will also have at his disposal his personal experience
of car insurance, and occasionally perhaps his prejudices,
likes and dislikes.
This rather unscientific combination of prerequisites may
not be ideal for a car insurance system but it is interesting
to note that many of the smaller car insurance accounts which
are individually underwritten tend to be much more selective
and profitable than larger car insurance accounts and systems
which are underwritten on statistical information with little
flexibility for non standard customers.
Much pressure has been brought to bear in favour or 'mass
production' car insurance underwriting techniques and procedures,
with little room for variation or special treatment, so that
insurers' administrative expenses which are always open to
public and governmental criticism - may be minimised.
THE PROPOSAL FORM - the data basis for rating
The information obtained from a proposer for car insurance
on a proposal form is designed to throw as much light as possible
on the potential risk, or the 'exposure' , to which the car
insurers may be committing themselves; the physical and moral
hazards inherent in any particular risk must be properly considered
so that an adequate premium and the right terms may be quoted.
If you make a claim, the data supplied on your proposal form
will be used.
BASIS OF RATING
For the greater part of its existence the Car
insurance industry has adopted a more or less uniform attitude
and approach to the factors which are taken into account in
deciding the basic premium for a particular private car risk.
The car insurance rating factors commonly used are:
(a) Use to which the car is put - read
more about car usage
(b) Type of car. Cars are sorted into rating groups
(c) Postcode where the car is normally garaged.
(d) Cover required - Comprehensive , TPFT etc.
(e) Age of insured and/or regular driver.
Rating and Underwriting Data sources
The following Data sources used are used in underwriting Car
Insurance using computers. The data prevents time consuming
rekeying and calculations and cuts the costs of production
of Car Insurance.
.
DVLC – Car data, make model size colour etc is automatically
imported into the car insurance computer application to assist
rating and print cover documents.
CUE – The Claims Underwriting Exchange
– All Insurance companies pass data to and from the
CUE on a daily basis. This has dramatically reduced car insurance
fraud.
MIAFTA
- Motor Insurance Anti-fraud and Theft Register
Experian – Credit Agencies – Many
Car Insurance companies now use personal data bought from
Experian and other credit agencies. The ‘unlikely’
theory is that if you have a poor credit score your are more
likely to claim.
Rating systems – the rates are allocated
to Postcodes, so car insurance risks are always heavily influenced
by the cars permanent location.
Internal historical records within the Car Insurance
company usually stored on large mainframe systems or IBM AS/400’s.
Client and customer records can be imported straight into
the Car insurance computer application using address or name
as a keyword. Discounts may be offered if you use the companies
other Bank / Assurance products.
Motor
Insurance Database – All car insurance transactions
are legally required to be passed on a daily basis to the
Motor Insurance Database which is administered by the MIB,
and which can be accessed by mobile police forces at any time
to check the insurance status of every car. Click
here to read more about how big brother is controlling
car insurance fraud with the use of internet technologies.
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UK
Car Insurance Online
