Reader’s Question:

Why do automotive insurance companies conduct annual risk assessments? What effect does it have on my premiums?

Bridget

Nashville, TN

Basically, automotive insurance companies conduct annual risk assessment for them to determine your premiums based on calculated risk. Annual risk assessment is a point system used to gauge if have you been a good driver, or whether you have
had charges brought against you, moving violations, reprimands, usage, miles covered, etc., etc. This would be the insurance carriers’ basis for setting your current premiums. If your rating is high based on the calculated risk, these automotive insurance companies will most likely charge you higher premiums. You have to remember that the higher the risk, the higher your premiums get.

Depending on jurisdiction, your premiums can either be authorized by state laws or determined by your carrier. More often than not, your automotive insurance company determines your monthly premiums and has more freedom to set the actual coverage that you are going to get. With these auto insurance companies, setting the premiums vary, depending mostly on the factors that could affect the cost of future claims. Therefore, your risk for accidents, citations, etc., would, in this case, translate to higher probability of repair or damage cost, penalties, fines, and higher probability for benefit claims. Insurance companies use this as a standard on which to base their clients’ premium rates, and it would definitely help if you could make sure not to be a “high risk driver.”