UNDERWRITING FACTORS IN HOUSEHOLD INSURANCE POLICIES

Household insurance is a package of insurance policies that bring together the different covers of property insurance policy for private residence, whose perils include damage by fire, storm, riot, and liability for injury to others or damage to their property. It combines various personal insurance protections against damages or losses that can happen to one’s home. Household insurance policy combines, within a single document, three different types of cover which are building insurance cover, content insurance cover, and legal liability insurance cover.

• Building insurance cover is the insurance cover that is provided under the household insurance to protect both owner and the occupier of the building against the damage which may arise out of different risks. Such risks involve fire, lightning and explosion, theft and attempted theft, riot and civil commotion, strikes, labour or political disturbances, malicious damage or vandalism, storm and flood, and falling trees or branches. This type of policy is designed to cover the structure of the home including additional elements such as walls, fences, paths and driveways, garages, gardens, and fuel storage tanks.

• Content insurance cover is the type of insurance cover which is provided under the household insurance to protect the occupier of the building against damages and losses that could arise from the destruction of household goods and personal possessions belonging to the insured or members of their household. Such goods and possessions include contents like refrigerator, Television, washing machines, air conditioner, generators, furniture, and toilet fixtures. Everything which the occupier may move from the occupied house is protected under the content insurance against the damage which may arise under different perils such as fire lightning and explosion, theft or attempted theft, and accidental damage which may be arising to the content.

• Legal liability insurance cover is the insurance cover that is provided under the household insurance to protect both owner and the occupier of the building against legal liability arising out of third-party bodily injury, illness, death or accidental property damage. In legal liability insurance cover, the injury or damage to the third party must have occurred during the period of insurance. This cover has the building section – which covers liability incurred as the owner of the dwelling – and the contents section which protects the interests of the insured as the occupier of the dwelling.

Underwriting in insurance refers to the process of selecting the applicant of insurance which involves risk assessment and underwriting the risk. Therefore, in household insurance, this process depends on which cover as mentioned and explained above. During the underwriting process, the underwriter considers different factors that may affect the potency and exposure of the risk involved. The following are factors that are considered by the underwriter during the underwriting process based on what cover the insured may need.

Construction details of the home, this is the factor that may be considered by the underwriter while performing the underwriting process. The construction details of the home can help the underwriter to know the type of material used when constructing that house. For example, materials like glasses will rapidly increase the rate of the premium that is to be charged due to their higher risk of breaking than when the house is constructed with blocks and cement only.

Location of the house, this underwriting factor is more important to be considered during the process of the underwriting in the household insurance, especially to the building insurance cover. Location of the house can let the underwriter figure out the kinds of risks that the building is exposed to in order to decide whether to accept or reject the risk and if accepted at what rate of premium to be charged. For example, buildings located near petrol stations will be charged a lot more premium than other buildings, and buildings near a fire department are likely to be charged a lower premium.

Replacement cost of your home, while underwriting a household risk underwriter will also pay attention to the amount of money used during the construction process. Replacement cost is the amount of money that will be spent to build the exact same home where it stands now. The most misconception a lot of clients do is under-insuring their homes so as to pay less premium, which is perhaps the biggest mistake homeowners make when insuring their homes because in the event of loss the indemnity will not cover total replacement.

Marital status, married couples historically file fewer claims than singles. For this reason, insurers tend to prefer married homeowners to single people homeowners. Married couples are seen as more mature, and they, therefore, present less of an actuarial risk to the insurance companies. Insurance business follows the law large numbers to decide on the appropriate premiums to charge the insureds, and the statistics in the law of large numbers favours married homeowners.

Incomes of the homeowner and occupier of the house, this is also one of the factors which underwriters consider during the underwriting process in order to determine if the insured will be able to pay the stated amount of the premium every year. Incomes of the homeowner and the occupier of the house allow for the underwriter to advise the insured on the appropriate cover for their home. For instance, low-income owners might be advised to only take the legal liability cover because losses through legal liability present the most danger to a homeowner as it is a court order to compensate for the liability caused to third parties.

Insurance history of the insured, historical records of the insured on the insurance market may be another important factor that underwriters consider during the underwriting process. The insurance historical records of the insured will alert the underwriter on the claim history of the insured which may draw out the trends of risk exposure of that homeowner. Therefore, homeowners with previous claim history will be charged more premium than those without any claim history.

The number of house dwellers, this factor applies for content and legal liability covers of the household insurance policy. During the underwriting process, underwriters will need the full details of all the house dwellers and their major possessions so that the appropriate premium can be charged. House dwellers in this case may be the father of the family, mother, children, and house helps individuals that live in that household during the existence of that insurance policy.

Age of the house, the time when the house was built is of high importance in the underwriting process as helps the underwriter determine the appropriate premium for it. The age of the house gives out crucial information about the time the house was built, the construction cost, and the current market value of the house. The age of the house also presents crucial information on the risk exposures that the house carries. Houses that have been around for a very long time pose a greater risk than newer houses and will be charged a higher premium.

Exposure to natural disasters, some locations are more exposed to certain natural disasters than other areas. For instance, the rift valley zone presents locations that are prone to earthquakes; and houses close to the shore, coastline, or body of water present the risk of damage due to tsunami and other calamities involving abnormally sized waves. Other natural disasters that can pose risks to homeowners include floods, moving ices, avalanches, snow, and stormy winds. Houses located in areas that pose a greater risk to certain natural disasters will be charged a higher premium.

Security systems and other protective fixtures, houses with security systems in place will have reduced their total risk exposure which will also influence the underwriter’s decision to lower the premium charged. Having protective fixtures around the house signals a good actuarial risk to the insurance company and the underwriter will likely award the insured a discount on the premium. Security fixtures are in place as a way of reducing risks; for example, fire extinguishers reduce the risk of accidental fire, and electrical fences and alarm systems reduce the risk of theft.

Generally, the underwriting process in household insurance considers a lot of factors about the insured, their building and the location of that building, and how they increase the risk exposures of the insured perils. Insurance companies use multiple factors when setting your home insurance rates, therefore homeowners should get quotations from multiple insurances companies and compare their premium prices so as to get the best deal for their insurance policy.