Jasz
VIP Contributor
The cause of risk is the probability of an event happening and its severity. The riskier the event, the higher the probability of it happening. Insurance companies use a variety of methods to calculate insurance premiums based on risks. For example:
a. A car insurance company may use a statistical formula to determine how much they will charge you for your car insurance policy. This formula is based on how many other people in your area have similar cars and how often those people were involved in accidents or stolen vehicles.
b. A homeowner's insurance company may use a statistical formula to determine what they will charge you for your homeowner's policy. This formula is based on how long you have lived in your house, how many bedrooms there are, what kind of neighborhood it is (e.g., urban vs. suburban), and whether or not it has been remodeled recently (i.e., if it has been updated with new appliances).
c. A marine insurance company may use an actuarial model that takes into account age, gender, location (e.g., ocean vs land), exposure to weather conditions such as hurricanes and floods, etc.
a. A car insurance company may use a statistical formula to determine how much they will charge you for your car insurance policy. This formula is based on how many other people in your area have similar cars and how often those people were involved in accidents or stolen vehicles.
b. A homeowner's insurance company may use a statistical formula to determine what they will charge you for your homeowner's policy. This formula is based on how long you have lived in your house, how many bedrooms there are, what kind of neighborhood it is (e.g., urban vs. suburban), and whether or not it has been remodeled recently (i.e., if it has been updated with new appliances).
c. A marine insurance company may use an actuarial model that takes into account age, gender, location (e.g., ocean vs land), exposure to weather conditions such as hurricanes and floods, etc.