Question by Morgan B: If I were to open an car insurance business and set my rates to make a profit, yet did not charge extra if?
had an accident or had the wrong zip code, would I go broke?

Best answer:

Answer by enoriverbend
Past accidents and zip codes and what kind of car they drive all factor into what kind of risk the customer presents — i.e., how likely they are to cost you money. Other insurance companies know this and set their rates accordingly.

If you charge all customers the same rate, what you will find is that the good risks go elsewhere (because they can get a better rate) and you’ll be stuck with the bad risks (because your rate will be cheaper for them.) This won’t be good for your insurance company. If you end up raising the rates for the bad risk clients you have left, then you might end up making money, but you’ll be a bad-risk specialist.

Know better? Leave your own answer in the comments!