Insurance companies are for-profit organizations – i.e. they’re businesses. The one basic hard and fast rule that universally applies is that in order to stay in business, the company has to acquire more revenue than they have to spend for operating expenses. For this reason, the insurer has to be able to accurately determine the probability that the risk of providing coverage to a particular individual will not be an unprofitable transaction for the company. In order to make this assessment, a variety of data is accumulated and analyzed and a formula is then created. The formula is applied based on the data available and the premium is based on the likelihood that the insured will at some point incur a loss – i.e. file a claim.
The following is a breakdown of the most common factors used by insurers in order to best calculate risk.
Type of Motorcycle
Every type of bike has a different demographic in terms of its core rider. Touring bikes typically are owned by older clientele, whereas sport bikes are usually ridden by younger generations. The type of rider typifies a number of variables; experience of the operator, likelihood the bike will be properly maintained, probably the motorcycle will be abused, etc. It doesn’t take anything more than basic common sense to realize that an 18 year old kid riding a 1000cc crotch rocket is exponentially more likely to lay his bike down at some point than a 50 year old man cruising around on a Harley Davidson or a Honda Goldwing. These generalizations are often viewed as unfair, but statistical data doesn’t lie. Furthermore, ask yourself when the last time you saw a guy on a Kawasaki Ninja with a ZZ Top beard straggling out the bottom of his helmet?
Another factor in determining the premium of the insured is his/her credit rating. It may again seem unfair that people with poorer credit ratings have to pay more, but again – the basis for this is in the data. Statistically speaking, the lower the credit score of the driver, the more likely he/she is to be involved in an accident that results in a claim or a loss. Therefore, those with lower credit scores are forced to pay higher premiums.
The higher the deductible the insured is willing to incur, the lower the premium will be.
A highway accident that involved a motorcycle is much more likely to result in a total loss. Combine that with the fact that a driver with prior moving violations is of an increased likelihood of an accident, and the premiums are going to be lower for a rider whose driving record is clean.
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