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Understanding your insurance “score”

If you’re like many of us, you tend to shop around for home insurance. Some important factors are price, claims handling, reliability, ability to contact a representative when you need to, and ease of obtaining a quote or policy online, in person, or by phone. All of these factors, and more, can help you determine whether this is the type of company you want to trust with insuring your valuable possessions. Please note, the information found in this article is specific to Canadian residents.

But, have you ever thought about how you measure up as an insurance risk? When an insurance provider decides to insure your home, they’re taking a calculated risk. And there are a number of factors they consider when deciding whether to insure you, and at what price. Of course, insurance companies will look at the age and condition of your home, but they’re also looking at you.

  • Do you currently have insurance? If you currently have insurance on your home, it could indicate that you are a responsible home owner/renter. You value your possessions, and take care to make sure they’re properly insured. It could be inferred that you take care in other areas as well, for instance, you make sure your home is in good condition by updating and making repairs as needed. If you don’t currently carry insurance, why are you suddenly interested now? Maybe you’ve recently experienced a loss and had no coverage. Maybe you haven’t bothered to update your roof, and you’re worried now that the rainy season is approaching. You could be going on an extended vacation, and it occurs to you that you should have insurance on your home while you’re gone. You could have a very valid reason for wanting to purchase insurance, but when you haven’t had coverage for a while, it will make an insurance provider ask questions.
  • Have you been denied coverage by another carrier? If your existing insurer is now refusing to renew your policy, any other insurance provider will definitely want to find out why before they take you on. It could be that you’ve bought a new home in an area in which your existing company doesn’t do business. Or it could be that you’ve had a large number of claims, or you’ve started a high risk home business. Whatever the reason, a new insurance provider will want to know why before they will insure your home.
  • Have you been cancelled by an insurer for non-payment? If an insurance provider has previously cancelled you for non-payment of premium, this will raise a red flag for any new company. There could be a very good reason in which case a new company will be willing to take you on. However, if you were cancelled because you regularly were late in paying your bills, or just didn’t bother to pay at all, it may be difficult for you to find a company that will want to insure you. Even if you pay cash up front, there is still the issue of renewals. If a company sends you a renewal policy, and you don’t pay on time, the policy will have to be cancelled, and a new policy written when you come in late to pay. All this costs money, so it is a consideration for the insurer.
  • Have you had prior claims? Sometimes your existing company will surcharge your policy due to your claims experience with them. If you then decide to shop around, be honest about your prior claims. Most insurance companies use the Home Insurance Tracking System (HITS) to look for any previous claims made by you. HITS also captures any losses that you initially reported, but then decided not to claim. If you don’t declare all losses on your application, your policy can be cancelled and your claims can be denied. If you were honest at the start, they would have had the opportunity of offering you insurance, possibly at a higher price, or declining to provide a policy. At that time you may have decided to stay with your original company.
  • Have there been prior claims at your home? Even if you didn’t live in the home at the time, if there were prior claims, you’re home insurance rates could be affected. It could be, for example, that the area’s sewer system is outdated and caused a sewer backup claim in your home. This increase the risk of a loss for your insurance provider, so the result could be higher rates.
  • Do you have a bad credit score? Some insurance companies will run a credit check on you to see how you measure up. Some believe there is a significant relationship between your credit rating and the frequency and severity of insurance claims. If you have bad credit, maybe you’ll be a poor insurance risk as well. CBC News has an article on how to check your credit report in Canada.
  • How is your employment history? This is another thing insurance companies may look at to help determine your stability. If you’ve been unemployed for a while, or if you regularly change jobs every 6 months, this could suggest that you’re more likely to move away or change insurance companies frequently. Insurers like customers who stay with them for years. Renewing an existing good customer is much less expensive than cancelling policies, and acquiring new business. So if you look like you’re going to stay around for a while, it could have a bearing on the amount of perceived risk.
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