Risk assessment is the science behind insurance that calculates how much each homeowner pays.
Two neighbours living in identical houses can pay different home insurance premiums to the same insurance company for the same cover because of risk assessment that is based on their personal circumstances.
Many factors affect the insurance rates homeowners pay.
The Top 10 each homeowner needs to look to reduce the risk if they can is:
1. Flood
- If your home is in a flood risk area, this can add 65% to your home insurance premiums. The Environment Agency publishes extremely accurate flood risk maps that are updated every quarter pinpointing every home that is risk from some degree of flood.
- Insurance companies have access to this data and include it in their risk assessment.
2. Crime
- Homeowners living in big cities with high crime rates pay more home insurance than those that live in the country. Burglary and vandalism are factored in to a homeowner’s risk.
3. Subsidence
- Many urban properties that were built before the Second World War are liable to subsidence from heavy German bombing and rockets. Other properties in geological unsound areas, for instance built on London clay or former mining areas are also subsidence risks.
4. Security
- The effort a particular homeowner puts in to security can reduce the costs of premiums.
- Simple actions like fitting approved locks and alarms and security lighting can cut insurance costs
5. Fire
- Installing smoke, fire and carbon monoxide detectors and having gas and electric supplies regularly checked by qualified professionals can reduce the cost of insurance and the risk of fire.
6. Age
- The policyholder’s age determines risk. Generally, the older the homeowner, the less the risk of a claim as older people tend to take more care of their homes and possessions.
7. Claim history
- The policyholder’s record of claiming against insurance policies is taken in to account when assessing risk.
- Someone who has a history of making claims will pay more than a customer who has made no or few claims.
8. Property use
- If the property is your home and you work from the premises, the risk is lower than if the property is empty for more than 30 consecutive days.
9. Rebuild cost
- The more expensive the home covered by the policy, the more expensive the rebuild cost; therefore the premium is pushed up.
10. Type of insurance recover required
- Some types of cover that are add-ons to the basic policy push the cost of home insurance up by increasing the risk. For instance, accidental damage cover leaves the insurer covering more risk.
These are by no means the only factors an insurance underwriter takes in to account when considering you as an insurance risk.
At the end of the calculation, you are allocated a magic number that is your insurance risk rating. This is cross-referenced with a table of rates for providing insurance and your quote is issued.
The process is similar to assessing your risk for credit.
