Question

Part 1: Discuss the purpose and implications (higher vs. lower premiums) of each of the 8 major rating factors for determining private passenger auto insurance premiums.

Part 2: Select ONE of the following scenarios. Discuss at least 4 of the 8 factors and how they would impact that type of risk. Explain your answer and offer suggestions for how a policyholder in a similar situation might be able to lower their premiums.

1. 16-year old single male driver living with his parents in Chicago, Illinois, who maintains a 2.5 GPA at his high school. He just obtained his driver’s license after successfully completing driver’s education classes and is driving a 2002 Ford Taurus sedan to and from a private school in the suburbs.

2. 45-year old married female living in Wichita, Kansas, with an insurance score of 559. She and her spouse own a new Chevrolet Suburban full-size SUV, a Toyota Tundra pickup truck for hauling feed for their horses, and a 1965 Chevrolet Corvette. She has had no accidents or citations in the past 5 years.

3. 85-year old widowed male living in Kalona, Iowa, with an insurance score of 750. He drives a 2013 Honda Civic under 10,000 miles per year. In the past 3 years, he has been ticketed twice for speeding and had one fender-bender in the grocery store parking lot.

Answer 1

Part 1: Age, Gender, marital status, years of driving experience, driving record, credit history, vehicle type, miles driven are some of the major rating factors for determining private passenger auto insurance premiums.

Age - The younger the drivers higher is the premium as there is a greater risk of accidents. Thus young and elderly drivers are charged the greatest premiums as their crash rates are greater.

Gender - Backed by data, males are more likely to crash, thus they are charged a greater premium. As males age and move to a different age group the rates are almost compatible between males and females.

Marital Status - Married couples are charged a lower premium as they are considered safe drivers.

Years of driving experience - The more experience less are the premiums as chances of accidents are lower.

Driving record - The more safe a driver, lower is the premium.

Credit history - Low credit score leads to hike in premium rates as they are more likely to commit insurance fraud.

Vehicle type - If the specific vehicle type has succumbed to greater number of accidents, then the rates will be higher.

Miles driven - The more one drives, more is the premium as the car is more prone to accidents.

1. 16 year, thus he is inexperienced. Age, gender, marital status and years of driving experience all are in the red zone for this individual, plus the car is also old, this increases the insurance premium further.

A policy holder might be able to lower premiums by taking into consideration that he drives in the suburbs where there is expected to be less traffic, thus one might reduce the premium by a certain percentage. Plus as he lives with his parents there are less chances of reckless driving and drunk driving.