Risk Selection for Car Insurance Policies

Insurance firms utilize the method of risk selection to decide upon their prospective clients, as well as the rate at which to charge their insurance premiums. As such, this method enables the company to decide upon the valid individual for availing insurance policy, who is worth investing in, and who poses the threat of too much risk.

The government itself in some states decides the minimum limit of the liability cover, as well as the premium to be charged for it. In other cases, however, where the firms hold more jurisdictions, they themselves decide upon such details taking into account the state’s basic infrastructure, as well as the prospective client’s specific situation. While mandatory laws with respect to minimum coverage exist even in states where insurance firms decide upon the amounts for different policies, the firms generally wield greater autonomy in setting the coverage for property damage and personal well-being than for setting the obligatory liability cover.

Fixing the premium rate is a complicated process which rests upon a number of factors believed to be highly influential within the context of claims that insurance customers can seek against the policy in the future. These factors include the characteristics, traits and abilities of the driver, the kind of car insurance coverage policy in question, as well as the vehicle type and category of usage.


Generally, the individual seeking the insurance cover is interviewed on the personal data regarding him or her, and is expected to complete a return form regarding associated information and formalities. Also taken into account by the insurance firm is the driving record of the individual, which is a property of the state government. Insurance firms create various categories of people as well as the insurance policies appropriate for each type, and using the collected information the insurance seeker is classified into one of the broad types and the premium rate pertaining to the particular category is accordingly charged. Personal specifications such as the gender, age, residential address, marital status and public record of the individual also affect the premium rate.


There are further differentiation's within these broader categories that take into account the subtleties and the premiums are then settled upon to suit the narrowest “type” possible.