Underwriting, Rating and Risk Selection
The underwriting process
Underwriting evaluates whether to accept a risk, on what terms, and at what price. Key factors include driver age and experience, driving record (tickets, at-fault accidents), vehicle type, territory, annual kilometres, use (commute, pleasure, business), and claims history.
Rating variables
Insurers use rating territories, driver classes, vehicle rate groups, discounts (multi-vehicle, winter tires, telematics) and surcharges. Merit/demerit systems reward clean records and penalize convictions. Facility Association provides coverage when the voluntary market declines a risk.
Risk selection and fairness
Insurers must avoid unfair discrimination and comply with human rights and insurance legislation. They may decline or surcharge based on actuarial evidence, but not on prohibited grounds.
Traps
(1) Assuming a clean record guarantees the lowest premium. (2) Forgetting that territory and vehicle rate group matter as much as driving record. (3) Missing that misrepresentation at application can void coverage. (4) Confusing Facility Association with a government insurer.
Worked example
A 19-year-old with one at-fault accident driving a sports car in an urban territory will typically face higher premiums than a 40-year-old with a clean record driving a sedan in a rural territory - because age, record, vehicle and territory all combine.