When insurance companies calculate premiums, they take a wide range of factors into account, however risk is the single most important consideration. Insurance companies are in the business of assessing the potential of a claim to be files, and one universal truth about insurance is that the greater the risk a specific situation poses, the greater the cost of coverage.
General Assessments of Risk
Insurance companies follow four main steps when making risk assessments:
- Identification of risk factors. Insurers begin by making comprehensive evaluations of all the different risk factors involved with a particular type of policy. For car insurance, they look at things like the driver’s history, the make and model of the vehicle, its value and where it will be parked. In essence, they make an educated guess as to the likelihood of a claim being filed against the asset.
- Placing value on specific risk factors. Some risk factors are more important than others. For example, in a life insurance policy, age and health history are much more likely to impact the outcome than gender or occupation. In other words, the initial general evaluation give way to a much more detailed analysis of specific, key risk indicators.
- Applying risk assessment to new policies. Once both general and specific risks have been identified and evaluated, the insurance company then plugs their values into the requested policy. This provides a very clear financial picture for the insurance provider, enabling them to formulate a price quote.
- Updating. Most insurance policies require periodic updating, which is typically performed annually. If risk factors have changed, either for the better or the worse, this will be reflected in your renewal rates.
As a homeowner, you might be deemed to pose a higher risk to your insurance company if:
- You have a low credit rating or an ongoing history of missing payments
- You have little or no prior experience with insurance coverage or claims
- Your last insurance company cancelled your policy or declined to renew your coverage
- You are covering a rental property in which you do not also live (absentee landlord)
- Your home has outdated electrical, HVAC and/or plumbing systems
- Your property is vacant
- You have more than two people on the mortgage
In Alberta, you may also be considered a higher risk if you live in the province’s flood plain, particularly in the wake of the 2011 events that caused billions of dollars in property damage. Floods cannot be named as a specific peril in Canadian home insurance policies, so homeowners are encouraged to take precautionary measures.
Car Insurance and Risk Assessments
From a general standpoint, your driving history is the single most important factor used to assess your risk when it comes to vehicle insurance. Specifically, insurers look at the following five things in determining whether or not you pose an increased risk:
- Your age. Statistically speaking, younger drivers are at increased risk of being in an accident. As such, young drivers should expect their car insurance premiums to be higher.
- Your history of traffic violations. Speeding tickets, failing to obey stop signs and other seemingly minor traffic infractions will all impact your vehicle insurance rates as long as the citations are on your record.
- Driving-related convictions. These serious incidents could include impaired driving convictions, vehicular homicide or dangerous driving convictions, and other vehicle-related crimes. Expect them to have a major impact on your rates if they apply to you.
- Insurance history. The shorter your insurance history, the higher your rates will be. This is largely because insurance companies have no prior track record to refer to as they assess your application.
- Vehicle make and model. You might think that only high-performance vehicles pose greater risks, but you’d be surprised. Some of the most common cars on the road are considered risky by insurance companies because of their theft rates. Do your research before you buy a vehicle, and shop around to find the best available coverage.
Your Alberta Insurance Broker: Save Big with Lane’s Insurance
No matter what your risk level, Lane’s Insurance can help you find an affordable policy that delivers the essential protections you need. You can save even more by bundling your home and auto insurance together! To learn more, or to discuss your situation in detail, please contact a Lane’s Insurance customer service representative.