What Is Private-Passenger Auto Insurance Policyholder Risk Profile?

Private-passenger auto insurance policyholder risk profile is an estimate of the risk an insurance company will take on by covering a specific automobile operator with an insurance policy. The private-passenger auto insurance policyholder risk profile allows an insurance company to estimate the likelihood that a particular driver will get into an accident, and thus result in a claim being made against a policy. Insurance companies sort policyholders into groups based on their risk profiles.

Private-Passenger Auto Insurance Policyholder Risk Profile Explained

At its heart, insurance is about accounting for risk, and the private-passenger auto insurance policyholder risk profile is designed to quantify that risk. The more likely a claim is to be made, the higher the premium an insurance company is going to charge. Automobile drivers, who have a history of accidents, live in areas where claims are more likely to be made, or have other attributes associated with higher accident rates, will have to pay a higher premium in order to obtain coverage.

The private-passenger auto insurance policyholder risk profile is typically broken into three segments: preferred, standard, and substandard. Preferred policyholders are the least risky and are more desirable because they are least likely to have a claim filed against them. Standard drivers are considered “average” in that they don’t have a spotless driving record, but don’t have many blemishes. On the opposite end of the spectrum is the substandard profile, which is attributed to the riskiest drivers. Risky drivers, if they can obtain insurance, have to pay the highest premiums because they are the most likely to be involved in an accident.

Insurance companies are likely to have policyholders in each of the three risk profiles. They want to balance the low premiums (and thus low revenue) associated with the preferred profile drivers with the greater premiums associated with more risky drivers. The goal is to limit the risk across a portfolio of policies relative to the amount of premiums that all the policies bring in. 

Improving a Private-Passenger Auto Insurance Policyholder Risk Profile

Drivers have a great deal of motivation to try to improve or safeguard their risk profiles. Here are two strategies for doing it:

1. Build the best possible driving record. The first step to a better risk profile is to avoid reckless driving practices, violations, and major damages. Aside from that, drivers can take classes to improve their driving skills or, specifically, defensive driving skills. This will help show your insurer that you are committed to safe driving.
2. Avoid filing claims, if possible. Filed claims build up a claims history, and most companies would not want to have policyholders that file claims often. Therefore, if you must file a claim, make sure the claim is for bigger damages and losses.