why do insurance premiums go up if you have the thing that you got insurance in the first place to protect against?


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.

In: 7

The fact that you got in one accident implies greater risk of future accidents. It most definitely does change the risk factors.

To use a healthcare example: By far the biggest predictor of whether or not you’ll get hospitalized this year is whether or not you got hospitalized last year.

Statistically people who get into accidents are more likely to get into future accidents. Thus one claim changes your risk factors and can be used to recalculate your premiums.

I don’t wish to defend the ethics of this practice. You can consider for yourself whether the above logic, or a deliberate strategy of disincentivising claims, is more important to the company.

Insurance companies are in the risk assessment game, and one of the risk factors for future accidents is past accidents. People who have had accidents are statistically more likely to have more accidents in the future.

Maybe they’re bad drivers. Maybe they simply drive a lot or live in an area with particularly bad drivers.

The insurance company doesn’t much care *why* you keep crashing, they only care that you *do*.

It’s all statistics.

If you looked at all of the people in the US, the general statistical trend would say that being in a crash means you’re more likely to be in *more* crashes.

This makes intuitive sense. If you get in a crash, this would mean that (on average) your driving is riskier than someone that hasn’t been in a crash.

Now, is this exact? No. You could have gotten in a freak accident. But the insurance company doesn’t really know this. They don’t know how you drive, how generally safe you are, etc.

>For example, if I get car insurance and get into an accident, why should that increase my premiums.

* Because the insurance company now thinks the risk of you getting into an accident was higher than they previously thought.
* In order to make sure they still make money, they need to increase the amount they collect from you.
* Insurance companies are all about math.
* In order to make X % profits each year, they need to charge Y customers an average of $Z each month in premiums because their operating costs are $A and the amount they have to pay out in claims each month is $B and the way they predict $B is by intensely studying the causes of accidents and noting after decades of research that if a person has one accident over the course of 5 years, they are much more likely to have another accident over the next 5 years when compared to someone who had no accidents those first five years.