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Insurance companies use the past experience
of millions of drivers to make predictions
about the frequency and average cost of
auto accidents during the policy period.
Insurance companies try to distribute
costs as fairly as possible, by grouping
similar risks and charging each group
premiums appropriate for its risk of loss.
This enables insurers to set premiums based
on the likelihood that, overall, drivers
with similar characteristics will experience
a predictable amount of losses during
the period covered by the policy.
Of course, insurers generally do not know
each of their insureds personally. Even if
they did, they could not accurately predict
if and when each individual would have an
accident. But by grouping insureds and using
past experience, insurers are able to
predict what percentage of each group
will have accidents over a period of time.
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Auto
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Auto
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