How insurance rates are calculated

Do you 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 as there are several factors involved in determining rates.

Calculating risk levels

Insurance rates, called premiums, are 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, we 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 will reflect:

  • whether your neighbourhood is prone to wind, hail or 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: 

  • safety and theft statistics for your area
  • 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

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.

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.