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HOME : Just the FAQs Ma'amMy Neighbour Has Cheaper Insurance!I asked my broker why my neighbour pays a different amount for his homeowner insurance than I do. He said it was due to the "underwriting." What on earth does that mean? For starters, let's
say you own some valuable jewellery that you have listed separately on
your insurance policy (called "scheduling"), but your neighbour
doesn't. Then suppose you have rented out the basement apartment of your
3,000-square-foot house, while your neighbour lives with his immediate
family in a 2,000-square-foot dwelling. All of these factors would cause
an insurance company to decide there was more at risk in insuring your
home than your neighbour's, and so you would pay more for your coverage.
That's underwriting! It simply means deciding on what terms to accept a
"risk" -- like your home or your neighbour's -- and pricing it
accordingly. It's a strange word,
but once you know how it came about, it all makes sense. Insurance began
back in the 15th century with merchants insuring ships and cargoes.
Insurance companies didn't exist then -- all risks were insured by private
individuals who did this as a sideline to their regular business. By the
17th century, an "insurance office keeper" -- the predecessor to
today's broker -- took the policy around the city of London in search of
wealthy merchants who could pay their share if a ship went down. Those
taking a share of the risk signed their names, with the amount they were
investing, one beneath the other at the bottom of the policy wording.
Hence the term "underwriters." It's really not all
that different today, at least in theory. The insurance company
"underwrites" the risk -- or not -- based on various "risk
factors" that it has established. In underwriting personal insurance,
like property and automobile, the company has already decided what rules
it will use to determine if an applicant is eligible for insurance. A risk
either fits the company's criteria or it doesn't. An insurance company
also employs people who are called "underwriters." They decide
whether the company should insure a particular risk, based on the risk
factors the company has set, and, if so, at what price. The insurance for your
house and your neighbour's was priced according to these risk factors --
whether a house is occupied by the owner or by tenants; whether it's a
single-family dwelling or has multiple tenants; the size and style of the
house; and its location (how far it is from a hydrant and firehall).
Generally, insurance is cheaper for an owner-occupied, single-family
dwelling. And don't forget, not
all homeowner policies are alike -- you may have purchased broader
coverage than your neighbour has. So be sure you are comparing apples with
apples before you upset the apple cart. |
