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Business management AccunttingConsider a situation where there is a huge influx of...

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ranger1980 | Student, Undergraduate | Valedictorian

Posted February 25, 2012 at 11:08 PM via web

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Business management Accuntting

Consider a situation where there is a huge influx of inexperienced, reckless drivers into your area. Assuming this increase is large enough to influence the market in which your insurance company operates, explain why the price of your car insurance policy will go up even though your driving records hasn’t changed.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted February 25, 2012 at 11:44 PM (Answer #2)

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At least two reasons.  First, the other drivers might hit you or might cause you to have an accident.  Second and more importantly, insurance is a pool of risk.  Your premiums go not only to pay for claims you may have, but also for claims by others who are insured by the same company.  The more bad drivers there are around, the more the company will have to pay claims.  The more they have to pay claims, the higher the premiums they will need to charge.

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vangoghfan | College Teacher | (Level 2) Educator Emeritus

Posted February 26, 2012 at 2:21 AM (Answer #3)

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The previous answer is spot on.  This, by the way, is why medical insurance usually does not cover pre-existing conditions. The more risks that a company agrees to cover, the higher the premiums will be for all who purchase insurance. This is one of those difficult situations in which one's best ethical impulses (such as the desire to help all those who need help) conflict with the basic laws of economics.

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litteacher8 | Middle School Teacher | (Level 1) Distinguished Educator

Posted February 26, 2012 at 5:08 AM (Answer #4)

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Obviously, the more reckless drivers in a area the more likely an accident.  You would pay more for your car insurance because it is more likely that you are going to get into an accident, because although your driving has not changed, your risks have.

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accessteacher | High School Teacher | (Level 3) Distinguished Educator

Posted February 26, 2012 at 5:21 PM (Answer #6)

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The answer is clearly all about risk and the nature of car insurance. The fact is that if you live in such an area, even if your own driving practices are impeccable, you will be at greater risk of having an accident thanks to the recklessness of otehr drivers around you. The amount of claims in such an area will also increase which will result in the premiums going up for everybody as well.

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readerofbooks | College Teacher | (Level 2) Educator Emeritus

Posted February 27, 2012 at 12:51 AM (Answer #7)

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As the others suggest, there is a direct correlation between the price of your insurance and where you live. If you area is filled with car accidents or even car thefts, then your insurance company will charge you more, because there is more risk. In this sense, your driving record is irrelevant. The risk involved in your area determines the price.

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