Determining the Price of Personal Auto Insurance. Underwriting How insurance companies evaluate risk. selective about who they choose to have as customers Looking for that ideal customer Goal is to insure customers with few claims. Insurance Application.
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Make sure you are honest –
not telling the truth might jeopardize coverage by the insurance company -- denying your claim.
Since insurance companies do not know how much they will pay out in claims …………
They use the Law of Large Numbers to Price Insurance
Honda Accord Cost : $25,000
1 out of 100 people
_______ / # insureds_______ = base rate
Individuals living in large city
Individual living in
small town or in rural areas
each person gets a different insurance premium
Premium-(Claims Company Pays + Expenses)= Their Profit
UNDERWRITING LOSS. Ex. tornados
This increases the profit they make on handing insurance
Know that you know more about how insurance is priced do you think you would want to be an actuary
when you graduate?