Hazards are defined by insurance companies as an increased risk under any given insurance policy. When it comes to auto insurance, the types of hazards may be indicated by the kind of policy you have, and certain hazards may be excluded from your coverage. Auto insurance companies determine hazards through actuaries that specialize in risk management, and certain steps you take against specific hazards can reduce your auto insurance rates. For example, anti-theft devices reduce the hazard of theft and can lower your car insurance costs. Commonly covered hazards under auto insurance include fire damage, collision damage, flood damage, theft of the vehicle or its contents, acts of God – such as tornadoes, hurricanes, earthquakes, etc., and loss of the vehicle or its contents. Read on for a more detailed definition of hazards in relation to auto insurance.
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UPDATED: Oct 30, 2020
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In general insurance terms, a hazard is something that causes an increased risk of a payout under any given insurance policy. The hazards are identified by the insurer and may be separately indicated by the type of hazard and any exclusions to coverage by a particular hazard, for example your insurance may cover you for fire that begins in your car as a result of an accident or mechanical failure but they may exempt other instances of fire damage such as a building fire (for which other coverage should be expected/sought – normally the building owner’s responsibility).
How are hazards determined by US auto insurers?
US auto insurers engage the service of actuaries who are qualified risk assessors to develop their list of hazards, though in the case of auto insurance this list is generally fairly constant, though risk mitigation that may reduce the impact of a hazard (such as anti-theft recovery devices) may offer a modification of a hazard or group of hazards.
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What impact do hazards have on my auto insurance policy?
Because a hazard is a risk that an insurer may have to make a payment in the event of a claim under the policy, the cost of your policy is based on the risks incurred by each hazard covered as well of course as the operating costs of administering and selling your policy (and the agent or broker fees that go with this) and a profit margin for the insurer.
Actuaries work on an insurance company’s behalf to determine the likelihood of each hazard resulting in a payout by the insurer under a policy, and it is their recommendation based on this analysis that determines the eventual price of your auto insurance policy.
Which hazards are commonly covered by U.S. auto insurance policies?
In the case of auto insurance there are many different policy variations and to understand the specific hazards that your insurance policy protects against you should consult your insurance contract and if you are still not clear then you should talk to your agent or broker.
In general, an auto insurance policy may provide coverage for some or all of the following hazards (or natural disasters):
- Fire Damage
- Collision Damage
- Flood Damage
- Theft of the vehicle or its contents
- Acts of God – such as tornadoes, hurricanes, earthquakes, etc.
- Loss of the vehicle or its contents
Additional Hazard (Insurance) Definitions
- Business Dictionary