Why Insurance Premium Costs Vary For the Same Level of Coverage

One thing about insurance policy pricing which tends to be viewed as rather unfair (especially by people who happen to discuss their insurance with their friends) is the fact that insurance premium prices can vary greatly from one person to another, even for the same type of insurance policy and the same level of coverage, taken from the same insurance provider. In fact, the differences in insurance premium levels between different policy-holders have sometimes been so great as to warrant written complaints to the insurance providers, sometimes followed by ugly incidences where the policyholders who feel 'overcharged' actually decide to change insurance providers, or do away with the whole insurance thing altogether, if it is not mandatory insurance we are looking at!

To understand what it is that makes insurance policy prices to vary so greatly from policy-holder to policyholder - even for the same type of insurance policy taken from the same insurance provider - it is important to first acquaint ourselves briefly with the process through which the various insurance providers work out what to charge the various people who get insurance policy from them.

As it turns out, insurance is all about risk, and providing an anchor against such risk. It is therefore not surprising to learn that risk, or at least perceived risk, is the main factor that insurance providers use to work out what to charge the various people who seek to buy their products. People who are perceived to be at a higher risk of suffering from the harm they are taking insurance against are therefore naturally charged more for insurance coverage than people who are perceived to be at a lower risk of suffering from the same afflictions against which they are seeking insurance coverage. To work out these relative probabilities, insurance providers are continually collecting and updating various profile factors for the various risks against which they insure, and a client who meets the 'high risk profile' is therefore the one who is charged higher premiums, with a clients who meets the 'low risk profile' being charged relatively lower premiums, in most cases.

Consequently, if you go shopping for insurance with your friend, and you (or whatever asset your are seeking insurance for) happen to meet the 'high risk profile' it should not come as a surprise to you when you end up being charged a higher premium than your friend, in spite of the fact that you could be looking for the same type of insurance policy, same level of coverage and from the very same insurance company.

Of course, besides risk assessments, there are a number of other factors that insurance providers use in working out their pricing structures. If a particular policyholder happens to be holding other types of insurance with the same insurance provider (and the insurer is aware of the fact), they could offer that particular multiple-policy holder 'huge discounts' on some premiums. Policyholders who get into longer-term commitments with insurance providers (say two year contracts, rather than 6 month contracts) could also end up getting insurance at much lower prices.