For example, if I get car insurance and get into an accident, why should that increase my premiums. I’m insuring against that risk, so the fact that I had an accident surely shouldn’t change by risk factors.
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Some people drive their entire lives without ever getting in an accident. The insurance company just sits there collecting payments and doesn’t actually give anything back.
If you get in an accident, the insurance company needs to pay out anywhere from $1000-100,000 on your behalf. You’re costing them money. The guy who never gets in an accident isn’t. That’s why it’s more expensive for you.
You’re premiums are based (in part), on the chances of you having an accident and/or filing a claim. When that “thing” happens, its new data that changes the probability, and therefore, changes your premium.
In a different category, one year my company’s health insurance had to pay out 10% more in claims than it collected in premiums. They literally lost money on us. Guess what happened to our premiums next year.
Insurance companies are a business and they have to recoup their costs. Otherwise there’s nothing to pay claims with.
They won’t increase the premiums until you finish out your term (or move, or buy a new car). That’s because, at the beginning of the term (usually one year) they did a risk analysis of you, and assigned you a premium based on that. They then usually slowly increase the premium on you because people are usually too lazy to shop around – but if you did shop around, you would find, after not being in accident for a longer period of time, you would be offered slightly lower premiums that would continue to drop the longer you go without an accident.
However, you got in an accident, so when your term ends and your premiums are recalculated, they will take into account the fact that you were in an accident. So, the next policy that gets written will have an increased premium to cover the odds that you’re in an accident again (greater, since people who have been in accidents are more likely to be in one again).
insurance companies are basically betting on you not having an accident, if you have an accident they adjust the odds.
and you having an accident could very well be because there was a change in risk factors, like you started taking a more dangerous road to work etc.
and there are, at least here, plenty of insurance companies that advertise that once you haven’t had an accident for a number of years, an accident won’t change your premium
Insurance rate is based on factors that companies can use to statistically predict your risk for an accident and put a numerical value on it. If you were an insurance company, who would you think is more at risk for getting into an accident, a person who has never gotten in one, or a person who already has?
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