How does an insurer calculate your home or car insurance premium?
The premium you pay for your home or car insurance is anything but random.
The calculation may be complicated, but it's easy to see how insurers arrive at a quote or renewal amount.
Pooling of risks or there’s strength in numbers
Think of our customers as a league of superheroes, ready to step in at any time. When the unexpected happens, like a car accident or water damage, they come to the rescue of the insured person in distress. That's why there’s strength in numbers! We pool the risks and ensure safety for all.
How? The premiums paid by our customers are put in a fund.
This fund is used to compensate unexpected covered losses. After submitting a claim, money from the fund is used to pay for repair or replacement costs.
Each insured person contributes to the common fund and benefits from solid protection thanks to this tag-team effort.
Rather than bear the financial burden of a loss all by yourself, you can share the risk with all our other customers.
You won't be alone, and that's reassuring.
Assessing risk based on the past and the future
Insurance is all about calculating risks. So, how do you calculate them when so much of life is unpredictable? We must consider the past, but also the future... even though, we don’t have a crystal ball.
We assess the number, cost and claims experience from recent years. Then, we estimate the amount that will be required to cover the potential claims for the coming year.
How is your car insurance premium calculated?
Several factors are used to determine your car insurance premium.
You could even use your own superpowers on them.
Your make and model car
Do you drive the latest luxury vehicle or are you content with a beater? Is your car the target of super villains?
Your car’s replacement value, the cost of parts and labour for repairs, the engine size and even the number of doors will affect the insurance premium.
The more time you spend behind the wheel, the higher your risk of having an accident and submitting a claim. The opposite is also true. When your car stays parked for weeks on end, you’re less likely to submit a claim.
This is why there is a question about annual mileage in insurance quotes.
Do you also drive to work or use it as part of your business? If the answer is yes, then your car insurance premium will be adjusted accordingly.
Your driving prowess
Super drivers stand out for their:
- Years of experience
- Number of traffic violations and demerit points on their driving record (This hyperlink will open in a new tab)
- Number of accidents (whether you’re at fault or not)
Your choice of coverage
What your car is covered for definitely affects your premium.
Here's an example:
Adding the Claim Forgiveness option to your insurance is reassuring, but it increases your premium.
The deductible is the amount you must pay in the event of a claim.
Opting for a higher deductible will lower your car insurance premium.
Your credit rating
What does that have to do with anything, you ask. It's simple: most insurers believe that people with an exemplary credit record are more likely to be careful drivers and keep their cars maintained.
A good credit rating is rewarded by a lower car insurance premium.
Your age, sex and location
The goal here is not to discriminate, neither positively nor negatively. The segment of the population that makes the most claims affects the cost of car insurance. Where you live is also a factor.
How is your home insurance premium calculated?
To calculate your home insurance premium, insurers assess the probability that you’ll suffer a loss and submit a claim.
This is the most important factor when it comes to calculating home insurance premiums. This is why we ask about your home’s:
- Age (new or historic)
- Outbuildings and structures (garage, shed or swimming pool)
- Location (urban or rural)
- Usage (residential or commercial)
- Building materials
- Heating system (especially backup systems like a wood-burning stove)
- Recent renovations (that increase the home’s value)
Your personal belongings
Your home insurance premium is also based on the actual (not sentimental) value of your possessions.
This is more than just your furniture, appliances and electronics. So, be sure to keep an up-to-date inventory of all your belongings.
This will make it easier for the insurer to know how much it’ll cost to replace them.
Your home’s purpose
The objective here is not to pry into your personal life. We simply need to know if you work from home, run a business out of it, or rent out part or all of it.
Your home’s rebuilding cost
This goes beyond mortgage payments, municipal evaluations or market value.
We want to know how much it would cost today to rebuild it, whether you’re the owner or a co-owner. Building materials, labour costs and the complexity of the construction are all factors.
Your home’s risk of water damage
- A sanitary installation or appliance (toilet, dishwasher or washing machine)
- A public water main
- Underground water seepage (e.g. water that comes in through foundation walls when the snow melts) or leaking into the roof during a heavy rainstorm
- Sewer backup
Your home’s risk of fire
A wood-burning stove and old fuse boxes, for example, will increase the price of your home insurance.
The distance to the nearest fire hydrant and fire station (or Aquaman1) also factors in.
The risk of forest fires was recently added to the list. Unfortunately, recent events have shown us that this risk is real.
Life is unpredictable
Despite our best planning efforts, life happens. But it's not all doom and gloom in Gotham City. Our mission is not to don a bulletproof bodysuit and cape, it’s to protect your most prized possessions according to your needs and budget.