How to Cut Costs with an Insurance Risk Assessment
In the movie Along Came Polly, Reuben Feffer (Ben Stiller) is the best insurance actuary in the business. He is so aware of the risks inherent in all situations that he creates the revolutionary Riskmaster 3000 Insurance Risk Analysis Software. The software is an insurance risk assessment tool that assesses the risk of prospective clients of the insurance agency he works for.
As any good insurance expert will tell you — it’s all about the risk. But calculating the risk for every little thing can leave you a little too anxious and afraid of life. Who else would know that they have “a 0.013 percent chance of being hit by a car on my way home or a 1 in 46,000 chance of falling through a subway grate”?
We suggest that you try to manage that risk by avoiding danger and having a plan. In addition to having a plan, the key is to know what your next move is. Luckily, there are ways to assess risk and make sure you have proper coverage in case you do fall through that subway grate.
Perhaps an article about “insurance risk assessment” might sound boring, but we’ll make it fun and we guarantee it will be 7 minutes well spent! Plus, you’ll end up with the piece of mind knowing you’ve made an informed decision.
This article is broken into 3 parts:
1 = Insider Information: You’re going to learn how insurance companies measure risk.
2 = DIY Insurance Risk Assessment: First, you’ll take a quick do-it-yourself risk assessment quiz.
3 = Next Steps: Last, but not least, you’re going to learn what to do with all this knowledge.
The Insurance Risk Assessment. How Insurance Companies Measure Risk
In Along Came Polly, Reuben assesses the risk of insuring the high-risk billionaire Leland Van Lew. As you can see in the “Risks” category above, Leland Van Lew leads a very risky lifestyle.
Reuben uses his Riskmaster 3000 to help him measure the risk of insuring Mr. Van Lew and make the decision on whether to insure him and for how much. (Disclosure: The Riskmaster 3000 doesn’t actually exist, it’s from a movie…but it’s still applicable and usable for each and every one of us.)
So what’s the ‘insider information’? How do insurance companies assess risk?
Insurance companies typically use software to assess risk and calculate premium rates for policyholders. They use a predetermined algorithm to gauge the risk that you may file a claim against your policy. These algorithms calculate key indicators about you personally and then measure against a data set to assess risk. You might be wondering what those key ‘key indicators’ about you are.
Here are 10 examples that could be key indicators for insurance companies. These indicators assess risk for a variety of types of insurance such as auto, health, home or business. Most of these seem obvious, but when you know what they’re looking at, then you have more control and can take action.
1 = Lifestyle / Hobbies: If you’re like Leland Van Lew and have hobbies like swimming with sharks, base jumping, and Komodo Dragon wrestling, then you are probably high risk. An insurance actuary or underwriter will examine your lifestyle to determine your life expectancy, which is an indicator of cost for the insurance company.
2 = Credit History: Good credit history indicates that you are responsible and can be trusted to pay your bills on time. Bad credit indicates a higher likelihood of a claim being filed against the insurance company according to their very extensive data. Credit history is a major factor in their algorithms. Research has also shown that people with bad credit scores tend to be poor drivers and engage in higher levels of risky behavior.
3 = Age: Age is interesting because depending on your age; your insurance premiums will be higher for some types of insurance and lower for others. For auto insurance, younger drivers have been proven to be more accident-prone. Insider tip: It is a blanket rule to charge higher premiums for drivers until age 25.
4 = Gender: Sorry fellas, insurance premiums for men are consistently higher. While that might seem unfair, the stats show that men are more likely to get in an accident or engage in risky behavior. That leads to a higher risk of a policyholder filing a claim against the insurance company, thus higher insurance premiums.
5 = Address: Depending on where you live, you could pay higher insurance premiums for your auto, home and health insurance. For example, if you live in a large, congested city, you’re going to pay more for insurance. Or if you live in an area that is prone to flooding or other natural events such as earthquakes, then your insurance premiums will be higher.
6 = Driving Record: Your driving record will obviously strongly impact your premium. If you have a history of speeding tickets, accidents or a DUI charge, the potential of a claim to the insurance company increases, thus higher insurance premiums. Are you starting to see a theme here?!?
7 = Personal Health: Your personal health status is another key indicator that insurance companies use to set your premiums. That’s why they ask all those questions about your alcohol consumption, how often you exercise, if you smoke, what medications you take, etc.
8 = Family Health History: Many diseases and other health issues are genetic. So yes, insurance companies factor them into their algorithm. Why? Because they are factors of your life expectancy and future indicators of cost for them.
9 = Marriage Status: Marriage typically lowers your insurance premiums. Married people have a family so they are typically more reluctant to take needless risks. A study in New Zealand proved that never-married drivers are twice as likely to file a claim on their insurance policy.
10 = Occupation: The length of time you have held stable work is an indicator of your responsibility. Also, the type of work you’re involved in is a factor. If your job is a high-risk job, like a logger or you work on an oil rig, then you’re considered high risk. Thus higher insurance premiums.
DIY Insurance Risk Assessment
If you have Reuben Feffer’s Riskmaster 3000 Insurance Risk Analysis Software, then you can skip to the next part. If not, click here to take a brief insurance risk assessment quiz and find out which “Along Came Polly” movie character you are.
How’d you do? At least now you have the knowledge to take action and make an informed decision on your insurance needs before even talking to an insurance agent.
How Much Insurance Do You Really Need?
You want to make an informed decision, right? You don’t want to pay too much. Also, you certainly don’t want to end up with more insurance than you need. However, you also don’t want to be stuck in a situation where you don’t have the protection you need when something bad happens. Then you’ll end up feeling like Reuben Feffer does in the picture above.
Great, so how much insurance do you need? The amount and kind of insurance you really need depends on several factors. For example:
- Revisit Insider Information: First of and foremost, revisit the 10 key indicators that insurance companies use.
- Family: How many dependents do you have? What would they need to survive should something terrible happen to you?
- Assets: What assets do you need to protect: House? Cars? Boat? Babe Ruth rookie card in mint condition?
- Business: Do you own a business? Does your business have any assets that it needs to protect?
Once you have that knowledge, then you can take action and talk to your insurance agent that you trust.
We’re here to help clients that know nothing about insurance. We can also help clients that have the information they need. Hopefully, this article gave you a better idea of what you might need. But we highly recommend talking to your insurance agent and put together a plan.
When you have the right plan in place that you know is the right fit, you’ll sleep better at night. When you sleep better, you’ll be healthier and end up reducing your life insurance premiums. See! We’re saving you money already!
Click on the following link to email us and set up a time to talk to your Dexter Insurance Agent.