Question

How auto insurance companies manage risk ?
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Answer 1

Hello there!

Auto insurance companies manage risk by charging low-risk drivers with lower rates, while charging higher-risk drivers with higher rates.

This is pretty much known as a "trust" thing with the driver and the auto insurance company.

Auto insurance companies charge lower rates for low-risk drivers because they can "trust" them more. Since the low-risk driver has a lower chance of getting into an accident, insurance doesn't need to get a lot of money from them for a accident. These drivers tend to have more experience on the road, good driving records, lower value cars, etc. There are many factors that lead to a insurance company charging a person lower rates.

Auto insurance companies charge higher rates for high-risk drivers because they have a higher chance of getting into an accident. You can probably say that insurance companies "do not trust" these drivers that much, therefore charging them with higher rates. There are different factors that make insurance rates high for someone. People who are teenagers, expensive cars, bad driving record, etc. Let's give you a more realistic example: I own a Lamborghini Huracan (the one in my profile picture) and I pay about $5,700 in total for a year for that car alone. The reason why it's so high is because expensive cars have a higher chance of getting into a accident, due to it being very fast and parts for the car are not cheap.

Answer 2

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Answer:

Insurance companies manages risk by balancing the low-risk drivers and the high-risk drivers. Insurance would charge higher rates for high risk drivers.

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Step-by-step explanation:

Insurance companies manages risk by sorting out the people who have a lower chance of risking a crash, with people who have a higher chance of risking a crash. They do this by charging low rates to the people that have a lower chance of causing a risk. They charge them low because they are trustworthy, and don't need to rack up a lot of money quick if they ever get into a crash. Remember, insurance makes people pay monthly so they could use that money in a accident.

But, this is different for people with higher risk. People that have a high risk of getting into an accident would be charged with a higher rate than people with lower risk. Insurance companies charge them with higher rates because since higher risk drivers get are more likely to get into an accident, insurance companies want to make sure that they can get the money for the accident as soon as possible. Insurance companies are the ones that pay for the accident, and that's why most places require you to have insurance while you drive.

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