Understanding how insurance companies calculate rates can be challenging. There are tons of factors taken into the premiums for car and home insurance. People normally have a subtle understanding about the way car insurance premiums work. However, insurance providers would have their own ways for determining the rates. Generally, people understand that car insurance depends on the driver’s age, previous history, such as traffic fines and accident records, and other violations. What most people fail to understand is how the address of an individual can affect their insurance premiums. For this, we will undertake and explore insurance premiums in Ontario.
Insurance companies have evolved over the years. Primitively, insurance companies used to operate by charging a fixed premium, which was unfair towards drivers with clean records. It was in favor of drivers with a poor driving record, as the premiums remained the same. However, current practices in insurance premium calculations are smart and consider a range of factors to reduce the risks for the insurer.
Your Address can make a difference
The address of an individual can significantly influence the premium rates and can increase (or decrease) those rates by quite a lot in high-risk areas. Insurance companies have identified a profound method to reduce risks by taking into consideration the area of where you live. This unique factor plays an integral role while calculating insurance premiums, here is why:
For car insurance, the insurance company will determine the individual’s address based on the postal code. Insurance companies these days keep a track of all previous violations and accident cases (in general, not per individual), which helps them in making statistical reports for the number of accidents in a particular area. Areas with busy and congested traffic is likely to have more car accidents compared to less busier streets. Insurance companies consider such areas as high-risk areas. For example, if an individual is living on a busy street that has a history of car accidents, then insurance company will consider that in their calculations.
Areas that have high number of car accidents are a risk factor for insurance companies, as it is more likely that people living in the area can be involved in an accident. When insurance companies cover a vehicle, they take a risk. For a small premium, they might need to compensate the value for the entire vehicle. Due to these factors, insurance companies would evaluate all the factors that increase risks of covering a vehicle. In Ontario, car insurance premiums vary vastly depending on the locality. The average annual premium for a car insurance starts from $1,579 a year and can go up to $2,500.
Insurance companies have different methods of calculating home insurance premiums. However, the fundamental ways to do this remain the same. The purpose of insurance premium is to minimize the impact of risk, which is why they evaluate various factors before determining yearly or monthly premiums. For home insurance, the address or the location of the property can affect insurance premiums. There are various factors taken into consideration while calculating insurance premiums for home insurance, such as the age of the property, current condition, the purpose of acquiring the property, and the risk of natural and accidental disasters.
Insurance premiums for a property located in a remote area will be lesser compared to a property located on the road front. The reason being that properties located on a busy road face the risks of accidents by ongoing traffic. For example, if a store is located on a busy road, there are chances that a vehicle rams into the building, causing loss of property and fixtures. Rebuilding or reconstructing the property is an expensive endeavor, which requires huge funding. Therefore, when insurance companies calculate premiums, they take into consideration the address and location of the property as well.
How insurance companies use Address information?
Insurance companies have smart tools to determine the risk factor based on addresses. They store historical information from previous cases. Using the data, insurance companies compile a statistical report to determine areas that have a high number of accidents, which are considered as high-risk areas and associate the rating to their postal code. Therefore, when people living in those areas apply for an insurance cover, the premium calculated would be higher compared to other areas. For example, Dufferin Street between St. Clair Avenue in Ontario has the highest insurance premium, which can go up to $3,241 per year.
For more information on your address and how it affects your insurance, give our company a call and we’d be happy to help you.