Private Passenger Auto Insurance Risk Profile – Definition

Cite this article as:"Private Passenger Auto Insurance Risk Profile – Definition," in The Business Professor, updated April 11, 2019, last accessed August 11, 2020, https://thebusinessprofessor.com/lesson/private-passenger-auto-insurance-risk-profile-definition/.

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Private-Passenger Auto Insurance Policyholder Risk Profile Definition

Private-Passenger Auto Insurance Policyholder Risk Profile is the estimated risk that an insurance company will undertake by covering a certain automobile operator using an insurance policy. With the private-passenger auto insurance policyholder risk profile, an insurance company can estimate the possibility of a certain driver getting involved in an accident, and thus lead to making a claim against a policy. Policyholders are sorted into groups by insurance companies. The risk profiles of these policyholders determine the group they belong to.

A Little More on Private-Passenger Auto Insurance Policyholder Risk Profile

At its core, insurance is about estimating the risk, and the private-passenger auto insurance policyholder risk profile is programmed to measure the risk. The higher the probability of making a claim, the more premium an insurance company will charge. Automobile drivers with past cases of accidents, reside in places where there is a higher tendency of claims being made or have other features related to higher accident rates, or would have to pay more premium in a bid to obtain coverage.

The private-passenger auto insurance policyholder risk profile is divided into three aspects and these include: preferred, standard, and also substandard.

A preferred policyholder is more desirable and the least risky because he/she has the least possibility of having a claim filed against him/her. A standard driver is termed as “average” due to the fact that he/she does not have a flawless driving history, but does not have many imperfections. Contrary to the aforementioned ones is the substandard profile. This is ascribed to the riskiest driver. For risky drivers who are able to obtain insurance, they would always pay the highest premium in that they have the highest tendency of being involved in an accident.

In each risk profile, insurance companies usually have policyholders. They want to level the low premiums (low revenues) related to the favored profile drivers alongside the higher premiums related to the more risky automobile drivers. The aim is to restrict the risk over a portfolio of policies in relation to the premium amounts generated by every policy.

Enhancing a Private-Passenger Auto Insurance Policyholder Risk Profile

Drivers are highly motivated at trying to enhance or protect their risk profiles. The undermentioned strategies are two strategies for achieving it:

  1. Build the best driving record. For a better risk profile, the first step is to avoid careless driving, major damages, and violations. Apart from the aforementioned, drivers can enroll in classes in order to improve and perfect their defensive driving skills. This will be a good way of showing your insurer that you commit to driving safely.
  2. If possible, avoid filing claims. There is what is known as claims history. This occurs when claims are filed. Most companies are never interested in policyholders who file claims every time. Hence, if you may file a claim, ensure the claim is for losses and damages that are bigger.

Lots of small business owners find themselves in situations where they utilize their cars for commercial and personal use. You need to know that insurance may not cover you for commercial claims in the case of an accident. You need to analyze all the risks involved and also ask the following questions-

  • How frequently does the vehicle function for commercial purpose?
  • Does your company claim ownership of the vehicle (i.e. in your company’s name)?
  • Do your employees ever drive the vehicle?
  • Do you ever make use of the vehicle for transporting heavy load for your business?
  • What’s the nature of the business? (e.g work from home, construction, sales, etc.)

References for Private Passenger Auto

Academic Research on Private Passenger Auto (PPA)

Consumer complaints, racial discrimination, and distribution channels in private passenger auto insurance, Chan, T. S. (1998). Journal of Insurance Regulation, 17(1), 24. This article examines private passenger auto insurance with reference to racial segregation, distribution channels, and consumer complaints. It analyzes the factors that cause consumer complaints and also checks for details on the multivariate statistical analyses.

Private Passenger Auto Insurance in New Jersey: A Three-Decade Advertisement for Reform, Worrall, J. D., & Cummins, J. D. (2002). Deregulating Property-Liability Insurance: Restoring Competition and Increasing Market Efficiency. This paper explicates New Jersey and its private passenger auto insurance.

Methodology and Data Used to Develop the California Private Passenger Auto Frequency and Severity Bands Manual, Hunstad, L. (1996).California Department of Insurance, April. This article examines private passenger auto and the data used to develop it in California.

INDIANA PRIVATE PASSENGER AUTO December 1, 2015, AUTO, P. (2015). December 1, 2015. Policy, 10, 11. This article examines the private passenger auto in Indiana.

ANTI-COMPETITIVE EFFECTS OF POOLING PRIVATE PASSENGER AUTO INSURANCE., Mintel, J. (1985). Journal of Insurance Regulation, 3(4). This research work centers on the anti-competitive impacts of grouping private passenger auto insurance.

Strategic orientation and equifinality in the US private passenger auto insurance sector, Elango, B. (2010). Journal of Service Science, 2(2), 127-146. The aim of this paper is to analyze firms’ strategic orientation in the private passenger auto insurance sector. It uses the ideology of strategic groups. Its data was from 2002 and 2007 precisely and it sampled 53 insurers. The research found different strategic groups working in this segment with each group being unique in its mode of operation. The groups include Mid-Tier Players, Cost Leaders, High-Cost Niche Players, Diversified Firms, and Geographic Niche Players. Study discoveries show various insights to firms strategizing entry or working in the private passenger section of the property-casualty insurance industry.

Delays In Payment Of Private Passenger Auto Premium Receipts/Commissions: Impact On Calculation Of Investment Income., Schwartz, A. I. (1989). Journal of Insurance Regulation, 7(3). This research work analyzes how a delay in the payment of private passenger auto premium receipts affects the calculation of investment income.

The Louisiana Legislature’s Attempt to Reduce Auto Insurance Rates with No Pay, No Play: The Answer, A Step in the Right Direction, or Completely Useless, Jenny, R. (2005). La. L. Rev., 66, 543. This article aims at justifying the Louisiana Legislature’s effort to reduce auto insurance rates.

The discretionary use of present value-based measurements by property-casualty insurers, Nelson, K. (1997). This article focuses on how property-casualty insurers use their discretion for present value-based measurements. For this research, a PC-industry specific model is developed and estimated in order for loss reserve revisions to be partitioned into discretionary, as well as, non-discretionary components using proxies for discretion and non-discretion. Using proxies makes it possible to test the directional hypotheses about the connection between the risk and market value, revision components and future profitability. Based on the prediction, it is discovered that discretionary revisions have negative associations with future profitability, positive associations with firm risk, and negative associations with market-to-book ratios.

A Nonlinear Modeling Approach for Assessing the Accuracy of Property-Liability Insurer Loss Reserves, Kazenski, P. M. (1996). Journal of Insurance Issues, 1-22. This paper seeks to assess how accurate property-liability insurer loss reserves is using a non-linear modeling approach.

Does Rate Regulation Alter Underwriting Risk?, Barth, M. M., & Feldhaus, W. R. (1999). Journal of Insurance Issues, 26-50. This article seeks to answer the question on rate regulation altering underwriting risk.

 

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