We’ve all been there…  You call an insurance provider to get a quote on vehicle insurance and the twenty questions start (or is it thirty?).  Where do you live?  Is it in a boomed area? Where will you park your car?  Have you claimed from insurance in the past?  You get the idea.

Based on the answers to these questions, together with your age, gender and any other data that the specific insurance provider deems necessary, they calculate and create your risk profile.  This profile then dictates what your monthly premium will be – that is. the amount of money you need to pay them each month.

Called risk-based pricing, insurance companies employ this approach because not all people are the same and, as such, not all 30 year old males (for example) are equally likely to claim from their insurance.  In other words, although people fall into the same demographic groups (like being male and in their 30s), they don’t receive the same insurance quotes and ultimately don’t pay the same insurance premiums.  Instead, their premiums are based on the probability of them submitting a claim.

So how do insurance providers get sufficient information from you to determine your risk profile?

There are three main routes to obtaining this information:

1)     They ask you

An insurance provider will always give you a questionnaire to submit alongside your application.  This questionnaire will include the questions, among others, mentioned at the beginning of this post.

2)     They check up on you

Insurance providers ask for permission to obtain information about you in order to give you a quote.  Once you agree, they are allowed to get in contact with your previous insurance provider (if they wish to) or check up on your credit record.  Obviously, if you have claimed from your previous insurance provider, this may increase your risk profile – especially if you have claimed multiple times.

3)     They use their data

Besides asking you directly and doing their research, insurance providers often draw on their expertly generated models to inform them of the level of risk that you may be.  These models draw on their own statistics and industry data.

Ultimately, the best you can do to keep your risk profile low is to act responsibly.  Take small simple actions, like not driving under the influence of alcohol or speeding.  And avoid incidents which may result in you claiming from your insurance in the first place.

That said, you don’t always have control and it may be another party’s action that causes an accident or damage to property.  So besides being proactive, it is also imperative that you remain honest with your insurance.  You pay them money monthly to insure you and give you peace of mind so don’t be dishonest with them and regret it later.  Instead, update your details with your insurance provider regularly, not only will this likely decrease your premiums, but it may also increase the likelihood that they pay out in the event of a claim.