How is Risk Profiling for Premium done in the Auto Insurance Industry?

When you own a vehicle, it is mandatory to buy an insurance coverage so that you can protect the vehicle as well as yourself during the event of an accident. The insurance policy will cover the expenses on repairs, replacement, and medical bills. When you buy an insurance policy, you are supposed to pay a premium for the same. However, the premium charged by the insurance companies differs from person to person.

While earlier, the insurance companies considered a handful of factors while insurance risk assessment and determining the premium, after the introduction of detariffication in Malaysia, the insurance companies have started taking into consideration the risk profile of each individual for calculating the premium. There are few benefits also which consumers can avail such as paying lesser premium if they have a low risk profile, or being a female driver as the premiums are charged less.

Here’ a look at how the premiums were determined earlier and how the scenario has changed post phased liberalisation:

Earlier, determining the premium was fairly simple as the insurance company considered only the individual’s age, driving record, location, and type of vehicle. Today, insurance companies can decide exactly how much to charge on the basis of individual risk profile.

The following are some factors considered by the insurance companies for insurance risk assessment so that you have an idea about how the premium charged by the companies is actually calculated:

1. Track record of payments

This is just like your credit history with banks. If you have always paid your automobile premiums on time, chances are that the company may be able to reduce your premiums up to some extent.

2. Credit rating

This may sound surprising but many studies have come up with an observation that individuals with good credit rating can benefit and actually pay lesser premium than others. It may come from the fact that insurance companies consider people with good credit rating as responsible people who may have a responsible driving behavior as well.

3. Driving history

The driving history is a sure shot indicator and determining factor of the future claims. The driver that has a clean driving record can enjoy some great discounts on premiums. On the other hand, people with record of accidents or tickets may not be granted any discount.

4. Type of vehicle

If you own a plush expensive car which is more likely to be stolen, you may end up paying more premiums for it. Also, cars with added safety features may be subject to additional credits.

5. Age

It has been observed that young drivers have reckless driving behavior leading to accidents. As you begin to age, the premium rates can begin to decrease.

6. Gender

It has been observed that men have a careless driving attitude as compared to women. Thus, women can enjoy the benefit of paying lesser premium than men, especially younger ones.

7. Location of home

People staying in high risk locations or with high-crime neighborhoods where the vehicle can get stolen or vandalised, may pay higher premium than others. Explore the web for more information on how the benefits of detariffication Malaysia for the consumers will motivate them to buy insurance coverage for their two and four wheelers.

Peter is a technical writer and insurance customer service officer. He writes for online blogging sites mainly related to auto insurance and car insurance.