Auto insurance offered to drivers considered to fall into the lowest risk profile. Preferred auto coverage for a driver takes into account that driver’s characteristics, and is offered to drivers considered the least likely to file a benefits claim. These drivers pay the smallest premiums for coverage. Being able to estimate the risk in underwriting a new policy can make or break an insurance company. If the company prices the policy correctly and understands the claim risk it can be profitable, since the premiums it brings in will exceed the benefits it pays out. Most insurance companies want a mix of low premium drivers who carry low risk, and higher premium drivers who are more likely to get into an accident. If the insurer does not effectively understand the risk associated with underwriting a policy it can wind up taking on too much risk and paying out more benefits than it receives in the premiums.
[source:http://www.investopedia.com/terms/p/preferred-auto-coverage.asp]
Sayed Farrukh Ahmed
Assistant Professor
Faculty of Business & Economics
Daffodil International University
