Preferred Risk

Preferred Risk A preferred risk is a policyholder who is considered significantly less likely to file claims. Therefore, insurance companies prefer it over a standard or higher risk because the former represent a better chance to make more profit. For the insurer, fewer claims equates to more money taken in and less money paid out. To the insurer a preferred risk is better to a standard or average risk since it has low claim frequency and severity. In this the insurance company makes more profits with respect to the premium collection. Contrarily riskier risk groups will pay higher premiums for example, people who are sick, older, or have a poor driving record, example, people who are sick, older, or have a poor driving record. Insurance companies rate risks on different terms as applicable to their field. For example, an applicant for life insurance who does not smoke can usually obtain a reduced premium rate to reflect greater life expectancy. For flood insurance, a policyholder living in a known flood zone is a high risk. Therefore, companies oftentimes charge those who represent higher risks a higher premium to offset the potential of more claims or more costly ones being paid out. However, those who represent preferred risks would be able to get better premium pricing due to the lower risk they represent. #benewinsurance #insurtech #inclusiveinsurance #insurance #reinsurance #takaful