What is Risk Evaluation?

If you’ve ever wondered why you have a less expensive insurance premium than someone else, the answer likely has to do with a practice called risk evaluation. It’s also sometimes called risk assessment, and is a common practice in the insurance industry.

Predicting the Likelihood of Future Claims

Put simply, risk evaluation involves using research and algorithms to determine with confidence how likely a person is to make a claim after becoming an insurance company client. Speaking broadly, an individual who is overweight and a heavy smoker would probably have a higher premium cost for health insurance than a person of normal weight who does not smoke. That’s because the person in the latter example is statistically less likely to make an insurance claim.

Tapping Into the Data

Insurance companies usually rely on software when performing a risk evaluation. However, the data that drives the software is targeted for the insurance industry.

One widely used resource is called Moody’s Risk Analysis. It helps predict how certain segments of the population are likely to behave. Numerous factors, including age and income, may come into play depending on the type of insurance a customer hopes to get

Proving You’re Responsible

If an initial risk assessment results in a premium cost that’s higher than expected, you may be able to eventually get lower rates by proving you’re more responsible than statistics might dictate. It’s just necessary to show continual good lifestyle practices or behaviors.

For example, data may indicate young drivers are more likely to get into wrecks. However, if you re a younger driver who characteristically obeys traffic laws and has never gotten a ticket, your premium cost could go down over time.

Hopefully you now feel more informed about risk assessment. The insight above helps reveal how your premium cost gets calculated, so applying for a new type of insurance or dealing with a new insurer shouldn’t feel so overwhelming and mysterious.