The first task of any insurer is to price risk and charge a premium for assuming it because part of the reliance of the insurance business is on its policy insurance premium income. An insurance premium is the money charged by insurance companies for coverage.
Insurance premiums for services differ from company to company, so it’s advisable that individuals shop around for insurance premiums. However, it’s important to note that, sometimes, insurance premiums quoted are slightly different from the premiums charged.
The difference between the quote and the actual charge can be attributed to the way the insurance premium is calculated. The amount of insurance premiums charged by the insurance companies is determined by statistics and mathematical calculations done by the underwriting department of the insurance company.
Insurance Underwriters are qualified persons who evaluate an insurance proposal to assess the kind and degree of risk involved. The underwriting process determines how much premium, or money, an insurance company should charge for that policy when it comes to the process of insuring someone or something.
Therefore it’s usually the greater the risk the higher the premium and vice versa the lower the risk, the lower the premium. To set rates, the claims history is studied of groups of people with similar characteristics and then information is added about their particular history to determine the exact premium.
For example, home insurance rates will reflect:
- Whether a neighbourhood is prone to wind, hail or sewer backup
- The crime rate in a neighbourhood
- How close a policyholder lives to a fire station and fire hydrant
- The value of personal property
- Insurance history
- The claims history of the property
Car insurance rates will reflect:
- Safety and theft statistics for in the area
- The safety features and statistics of a vehicle
- The year, make and model of a vehicle
- Whether you commute to work or use your car for personal or business purposes
- How many driving offences you’ve had, including past at-fault insurance claims
- How many years you’ve been driving
Your rates can also vary depending on if you qualify for any discounts, how much coverage you decide to purchase and the deductibles you choose.