September 29, 2020

Why do insurance rates change depending on where you live?

At the core, insurance is about assessing your level of risk, and how much it would cost to get you back on your feet if you experience a loss.

What is a risk?  A risk is the potential of something going wrong and is the main reason why people and businesses rely on insurance.  It can be a very scary word. Your insurance company protects you against the risk of uncertainty and the possibility of something going wrong.  They protect you against fire, lightning, flood, pipe rupture, vandalism, theft and many other perils that could result in a loss that was not planned. 

Insurance companies determine rates based on the likelihood of a claim being made. When you consider where you live in respect to where you will be driving, plus a variety of other factors, you can begin to understand the reason why your postal code will impact your insurance premium.

Below, we outline the factors that determine your home and car insurance rates. Keep reading to learn more.

Car Insurance:

  • Traffic patterns, congestion, and volume in your area – simple things like the number of intersections, traffic lights and signs in your area factor in to the amount of risk you have. The more vehicles on the road, the higher chance there is to be involved in an accident. So, if you live in a city with a high population, your insurance rate is more likely to be higher than if you live in a less populated area.

  • Commute to work – if you have moved and your postal code has changed, therefore affecting your commute to work, you will be experiencing different levels of risk while you drive. If your commute has decreased, you may see your rates go down. If it has increased, you might see it go up.

  • Probability of experiencing theft or vandalism- insurance companies have collected data over the years to document the amount of auto theft and auto fraud statistics per postal code. If you live in a postal code with a higher rating than another, this will reflect in your insurance premium.

As an aside, provincial insurance regulation will also affect your insurance premium. Car insurance is regulated at the provincial level, meaning each province has its own rules when it comes to pricing, including rules about how much flexibility there can be in rates across the province. Each insurer has to have its rates approved by the regulatory bodies in the provinces it serves — and the more heavily regulated the province, the less flexibility there is in pricing. Moving to a province with different rules may lead to a change in your car insurance premiums.

Home Insurance:

  • Age of home: Older neighbourhoods have older sewer systems, which could potentially put you at higher risk for a sewer backup. Houses in older neighbourhoods may also have out-of-date wiring and plumbing systems, which could increase your chances of an electrical fire or plumbing issues. Moving to an older neighbourhood might lead to an increase in your home insurance premium.

  • Proximity of fire services: The type of fire services in your area (i.e., volunteer vs. paid firefighters), as well as your home’s proximity to the nearest fire station and fire hydrant could have an impact on your home insurance premium. In the event of a fire, the longer the response time, the worse the damage — and the larger your insurance claim — is likely to be.
  • Environmental factors: Depending on where you live, you may be at greater risk for certain types of severe weather events. For example, hail is more common in Alberta than in other areas of Canada, while hurricanes are more common in the Atlantic provinces. If you live in a location that is prone to potentially damaging weather events, your home insurance premium may be higher.
  • Flooding probability: The closer you live to a body of water, the greater your chances of experiencing flooding. This increased risk could affect your eligibility for certain coverages (like overland water and sewer backup coverage), as well as the cost of your home insurance coverage.

In the end, it’s a lot to navigate on your own. That’s why a McFarlan Rowlands Broker is your best ally in finding you the best insurance coverage, for the best rates. Contact us today!


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