How Insurance Premiums are Calculated

There isn't a "one size fits all" formula to calculate a premium or price for each person who wants to cover risks on something valuable to them.

For example, when you apply to insure your car for a property policy, the bank will decide how much that particular car is worth (market value) and what risks are worth insuring. Insurers refer to known data when they make these decisions. If the car is kept in the suburbs with higher rates of car theft, you will be given a higher level of risk and, therefore, pay a higher premium.

Insurers also look at age, sex and claims history. This is due to demographic statistics as well as the driver’s personal driving record. Most insurers will take into account whether you’ve been at fault in other accidents or other traffic offenses.

Insurers must also decide how much coverage will be offered, unless you nominate a value. In some circumstances may not offer insurance if they believe the risk is too high. You may also have a choice about some aspects of the policy, such as the amount of excess and optional extras.