If I were to open an auto insurance business and set my rates to make a profit, yet did not charge extra if?

Question

had an accident or had the wrong zip code, would I go broke?

If your answer is no, then why do we put up with this crazy insurance fraud?

Answer 1

Yes.

Statistically, people who have been in accidents, or who have other indicators of higher risk will file more claims for more money. So, you charge them more. You charge people who will cost you less in claims less, to attract them.

Your hypothetical insurance company would go broke. Other companies would attract the lower-risk drivers with lower rates than it could offer, leaving it with higher risk drivers who would draw more in claims than the pay out. If it raised it's rates until it could cover those costs, it would actually be charging even the high-risk drivers /more/ than the companies that have been able to attract lower-risk drivers!

Answer 2

To offer competitive rates insurers charge according to the risk. If a driver has a history of violations or accidents, if he lives in an area that high incident of theft and vandalism they are chrged more. The only other ulternative is to pass the cost of the risk onto evry subscriber.