How to take stock of your insurance risk profile

By HUB SmartCoverage Team on March 2nd, 2018

What is a “risk profile” anyway?

Risk profiles, or risk assessments, are what insurance companies use to calculate how much money they charge on your insurance premium. They are used in all types of insurance policies: life, travel, property and auto. Determining your insurance risk as a policy-holder is the primary method in underwriting insurance policy premiums.

Once your insurance provider collects all the data it needs from you, it’s run through a proprietary algorithm that predicts how risky you may be as a policy-holder. Then, it suggests how much money you should pay per annum.

Insurance companies are businesses, and they’re all about predicting how much profit they can make as such. To consider your own risk, you have to think like an insurer:

Will a $300 policy cover someone who makes $1000 claims? Or, would it make sense to charge them a bit more for coverage, based on the data we have from their category?

Your risk profile

Once you fall into a category (property or auto), insurers measure how many claims you’ll be expected to make based on historical data. This data predicts your number of total losses, average loss size, and payout pattern based on others in the same category.

People exhibit similarities that have turned into statistics over decades of insurance history. They predict your potential to file a claim, how much that claim will cost, and your overall risk compared to what you’re insuring.

The provider will determine how much coverage is needed, which may differ from your own beliefs. If you don’t like the quote, you have every right to look around for another one.

Regardless, insurance companies need to factor in risk and predicted losses in order to operate. If one of your character traits falls into an insurance risk class that tends to seek frequent insurance payouts, your premium will be higher than someone who doesn’t fall into the same category.

Things to consider for auto

Certain information becomes associated with you as a person. If you fall into a group that perhaps gets into a high number of auto-accidents, tends to speed frequently or neglects road safety, you might be stuck with a higher premium. The type and condition of your vehicle also come into play.

Here are some of the factors that impact your auto insurance risk profile:

  • Credit history – are you responsible enough to pay bills on time? Statistically, people with lower credit scores have shown to be poorer drivers.
  • Age – you guessed it, young drivers that lack road experience have been proven to get into more accidents. More experienced drivers may receive discounts.
  • Address – cities are more dangerous, congested and unpredictable than ye ol’ country roads. Living in one will increase your premium.
  • Driving record – having speeding tickets, accidents or DUIs on your record will make you seem even riskier.
  • Marital status – having a partner and kids in your vehicle means you’ll take fewer risks on the road. A study from New Zealand found that never-married drivers are twice as likely to file a claim for collision than those who have tied the knot.
  • Gender – men have proven riskier on the road than women. The risk is due to the reluctance some men have towards wearing seatbelts or following speed limits. Men have also gotten into more serious crashes than women, historically. 

Things to consider for property

Property insurance providers look at two sets of criteria when it comes to underwriting your policy. First, they need to assess the home, then, the people that inhabit the home. You will also have to decide on the type of insurance you’ll need; actual cost value or replacement cost insurance. We found one property insurance questionnaire that was over 40 questions long, but we’ll save you the length and give you the highlights.

Here are some factors that impact your property insurance risk profile:

  • The age of the home and its material attributes
  • If the house is of the detached, semi-detached, or townhouse variety
  • How long you’ve been living there
  • How close you live to a fire hydrant or fire station, and where you live in general
  • How many mortgages are on the home
  • How many claims you’ve made in the last five years
  • How many renovations have been made on the home in the last 40 years
  • If there is a swimming pool, wood-burning oven or fireplace on the property
  • If you have any pets
  • If you smoke
  • How many people live in the home, and how many bedrooms
  • If there is a rental property attached to the home
  • What kind of heating or plumbing has been installed
  • How many smoke detectors and/or fire extinguishers are accessible within the house
  • If you’d like to schedule valuable items (jewellery or collectables)

How to take stock of yours

Now that you know some of the questions that insurance providers ask to calculate your predicted risk to them as a company, how do you think you stack up?

Do you think it’s unfair that you become a statistic, just like that? Everyone has a different approach to home ownership and vehicle operation, anyway. Now is a great time to remind you to shop around and compare providers through an insurance broker so you can find the best quote possible because each insurer is different too. 

If you can already tell you might seem a bit risky to insure, there are a few ways to fix things and prove to your insurer that you’re a credible and responsible homeowner and/or driver.

For property, you can score discounts on your premium by installing safety features in your home. Things like security cameras, fire extinguishers and alarm systems are likely to impress your insurer and decrease some of your risks. Upgrading old appliances and utility systems also make your home less dangerous overall.

For auto, there are a couple of ways to prove that you deserve a lower premium. First, if you’re a young driver, there are actually discounts available for students with excellent grades under that 25-year threshold. Graduating driver’s education will also reflect very well on you.

Next, if your driving record is a bit damaged, you really need to focus on correcting it. After years of stable driving, without collision or infraction, you can renegotiate with your insurer when it comes to renewal.

Some of these upgrades are expensive and take time. For property, create a little savings fund for home improvements. For auto, you need to exercise patience and caution as you mature on the road.

It will all pay off in the long run.

Share on social media