Do you ever wonder why your premiums sometimes change, or why auto and home quotes are different from one insurance company to the next? We understand that it can seem confusing; there are several factors involved in determining who pays what rate.

Calculating risk levels

Insurance rates (often called premiums) are set based on risk, or the potential that someone will make a claim. The greater the risk, the higher the premium. The lower the risk, the lower the premium. To set rates, actuaries study the claims history of groups of people with similar characteristics, and then add information about your particular history to determine the exact premium.

For example, home insurance rates are based on factors including:

• whether your neighbourhood is prone to sewer backup
• the crime rate in your neighbourhood
• how close you live to a fire station and fire hydrant
• the value of your personal property
• your insurance history
• the claims history of your property

Auto insurance rates will reflect:

• the driving experience of people in your age group
• safety and theft statistics for the area you live in
• the safety features and statistics of your vehicle
• the year, make and model of your 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

Both auto and home insurance rates also depend on if you qualify for any discounts, how much coverage you decide to purchase and the deductibles you choose.

Federal and Provincial regulations apply

Government regulations, taxes, and the cost of health care also affect rate calculations; as these costs change, so do premiums. Likewise, changes in court awards, towing fees, repair costs, insurance fraud, and more frequent and severe storms have all influenced rates over time.

For more information on premiums and answers to more of your most common insurance questions, visit Insurance 101.