Why you need to notify us of any Insure Changes?  For various reasons, including increased competition, insurance companies have moved to risk-based pricing models where each individual is priced according to his or her own risk. In other words, people are not treated equally; their premiums are based on the probability that they will submit a claim.

Assessing your risk is done according to the information the insurer obtains about you and your circumstances.  This is known as underwriting and it has become increasingly scientific.  The more accurately an insurer assesses your risk, the more economically it can insure you and fairer the system is on lower-risk policyholders, typically the majority.

However, the insurer must reach a balance. The more strict it is in its underwriting requirements, the more likely it is that prospective clients will be turned away. The more lenient it is, the greater the chance of out-pricing the competition but gaining undesirable business.

So how do insurers obtain information about you?  The obvious way is by asking you directly, in the form of a questionnaire that accompanies your application.  But they have other sources of information, including their own statistics and data shared by the industry, as well as your credit report, which they get from one of the credit bureaus.

If your insurer covers you on the wrong information, it is within their rights to repudiate a claim or not pay in full.  If you are truthful upfront and happen to fall into a high-risk category, the insurer can either decline you cover (which is unusual), or load your premium and/or include certain conditions to your policy.  

The advantage?  Your insurer is unlikely to repudiate a claim as a result of non-disclosure or incorrect information.

When you approach an insurer for a quote, you will be required to provide the following:

* Your insurance history and previous claims. This is vital information, which can be verified using industry data.  It is the frequency of claims, rather than the total amount paid out for claims that raises a red flag for the insurance company.

* Credit record. The insurer will obtain your credit record from a credit bureau with your consent. Based on actuarial models that insurers use, the better your record, the lower your insurance risk.

* The region you live in is vital.  Price-rating structures are based on regions and different underwriting rules apply. For example, if you live in Johannesburg, you fall into a higher risk (pay a higher premium) than if you live in a small country town such as Sutherland in the Karoo.  Crime is also not the only factor that is region-specific, it may be more prone to floods or lightning.