Auto insurance risk selection is the process by which vehicle insurers determine whether or not to insure an individual and what insurance premium to charge. Depending on the jurisdiction, the insurance premium can be either mandated by the government or determined by the Auto Insurance Company in accordance to a framework of regulations set by the government. Often, the insurer will have more freedom to set the price on physical damage coverages than on mandatory liability of Auto Insurance Coverages.
When the Premium Auto Insurance is not mandated by the government, it is usually derived from the calculations of an actuary based on statistical data. The Premium Auto Insurance can vary depending on many factors that are believed to have an impact on the expected cost of future claims. Those factors can include the car characteristics, the Auto Insurance Coverage selected (deductible, limit, covered perils), the profile of the driver (age, gender, driving history) and the usage of the car (commute to work or not, predicted annual distance driven).
In many jurisdictions it is compulsory to have Auto Insurance before using or keeping a motor vehicle on public roads. Most jurisdictions relate insurance to both the car and the driver, however the degree of each varies greatly. A 1994 study of Auto Insurance and related factor by Jeremy Jackson and Roger Blackman showed, consistent with the risk homeostasis theory, that increased accident costs caused large and significant reductions in accident frequencies.
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