Final answer:
Insurance companies assign driver violation points for convictions of moving traffic violations or at-fault accidents. These points depict the driver's risk level and influence insurance premiums, with high-risk individuals typically paying more. When an individual's premium matches what an average person in their risk group would claim, it's deemed 'actuarially fair'.
Step-by-step explanation:
The student's question is related to one aspect of car insurance, specifically, how driver violation points are assigned for each conviction of a moving traffic violation or at-fault accident.
These points are representative of the driver's risk and affect the cost of their insurance premiums.
Insurance companies classify drivers into risk groups and charge each group according to its expected losses. For instance, a group of safest drivers might be charged $100 each, an average group $1,000 each, and a high-risk group could be charged $15,000 each.
This is the average value of damages each risk group could potentially cause.
When the insurance premiums the individual pays equate to the amount an average person in their risk group would receive in insurance payments, this is considered 'actuarially fair'.
Therefore, high-risk drivers with more violation points will typically pay higher premiums due to the increased likelihood of them causing an accident and claiming insurance.
Learn more about Driver Violation Points and Insurance Premiums