Over the years insurance company rating structures have become progressively more complicated leaving many people wondering why they are paying more for insurance compared to a spouse or neighbour driving the same vehicle as theirs.
Gari Dombo, Managing Director, Alexander Forbes Insurance explains that “an insurer will calculate the average cost of different types of risk by examining claims histories. Premiums and discounts are calculated based on the ratio of factors that contribute to or reduce risk, with assumptions of future trends and profit being factored into the calculation.”
When making these calculations insurers do, however, remain mindful of the need for their pricing to be fair as well as competitive enough to attract and retain clients.
“It is as important for consumers to understand how these assessments contribute to their premiums as it is for industry players operating in a highly competitive insurance market” says Dombo.
Rating factors such as gender, marital status or age are used to estimate the risk involved in every individual’s situation and lifestyle. This is combined with the rating that the actual item insured attracts, such as the vehicle make and model, replacement value of the television set or security features in a home.
In the personal insurance market, it is essential to have motor vehicle rating structures that take into account the specific make and model of a vehicle since different vehicles have different repair costs. For example, “the most expensive components of one vehicle may be in front where collision damage is more frequent while another vehicles’ expensive components may be located in a less dangerous place” explains Dombo. This might make the insurance on the first car more expensive than the second, even if the first car was less valuable.
“The status of the driver is also an important factor in premium calculation” adds Dombo. For example, a young inexperienced driver purchasing a high powered vehicle with expensive parts, will be considered a high risk. This will be reflected in a comparatively high insurance premium.
So, when purchasing a new vehicle, “one should take particular notice of the insurance cost that it will attract” warns Dombo.
Another strong indication of future claims is a policy’s claims history. As such, “making sure there are no errors recorded against it can greatly improve the premiums an insurance company is willing to offer” advises Dombo.
Furthermore, it is essential for insurers to ensure fair contribution to the risk pool by rewarding clients with low claims frequencies, either with no claims bonuses or with lower premiums - a saving that clients enjoy up front every month.
That said the key element remains that the premium payable by each category of client should be enough to pay the claims and servicing cost of all the clients in that particular group of clients.
Certainly, “cross subsidisation of a high risk group by a low risk group is unsustainable and won’t last much longer in the current insurance market ” says Dombo. It is much fairer to profile each individual risk and rate it accordingly so that a person pays a premium appropriate to his or her risk profile.
So while getting fair and equitable rating right is the key to ensuring that clients get their money’s worth, in reality, “the claims of the unfortunate few will always be covered by the contributions of the many, this is the principle of insurance” concludes Dombo.
Gari Dombo, Managing Director, Alexander Forbes Insurance explains that “an insurer will calculate the average cost of different types of risk by examining claims histories. Premiums and discounts are calculated based on the ratio of factors that contribute to or reduce risk, with assumptions of future trends and profit being factored into the calculation.”
When making these calculations insurers do, however, remain mindful of the need for their pricing to be fair as well as competitive enough to attract and retain clients.
“It is as important for consumers to understand how these assessments contribute to their premiums as it is for industry players operating in a highly competitive insurance market” says Dombo.
Rating factors such as gender, marital status or age are used to estimate the risk involved in every individual’s situation and lifestyle. This is combined with the rating that the actual item insured attracts, such as the vehicle make and model, replacement value of the television set or security features in a home.
In the personal insurance market, it is essential to have motor vehicle rating structures that take into account the specific make and model of a vehicle since different vehicles have different repair costs. For example, “the most expensive components of one vehicle may be in front where collision damage is more frequent while another vehicles’ expensive components may be located in a less dangerous place” explains Dombo. This might make the insurance on the first car more expensive than the second, even if the first car was less valuable.
“The status of the driver is also an important factor in premium calculation” adds Dombo. For example, a young inexperienced driver purchasing a high powered vehicle with expensive parts, will be considered a high risk. This will be reflected in a comparatively high insurance premium.
So, when purchasing a new vehicle, “one should take particular notice of the insurance cost that it will attract” warns Dombo.
Another strong indication of future claims is a policy’s claims history. As such, “making sure there are no errors recorded against it can greatly improve the premiums an insurance company is willing to offer” advises Dombo.
Furthermore, it is essential for insurers to ensure fair contribution to the risk pool by rewarding clients with low claims frequencies, either with no claims bonuses or with lower premiums - a saving that clients enjoy up front every month.
That said the key element remains that the premium payable by each category of client should be enough to pay the claims and servicing cost of all the clients in that particular group of clients.
Certainly, “cross subsidisation of a high risk group by a low risk group is unsustainable and won’t last much longer in the current insurance market ” says Dombo. It is much fairer to profile each individual risk and rate it accordingly so that a person pays a premium appropriate to his or her risk profile.
So while getting fair and equitable rating right is the key to ensuring that clients get their money’s worth, in reality, “the claims of the unfortunate few will always be covered by the contributions of the many, this is the principle of insurance” concludes Dombo.
Please visit http://www.bestsure.co.za/ or contact 0861 10 12 20 for more info.
Source : Fanews
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