Your insurance premiums —also called rates—can vary significantly between policies and providers. While this can be frustrating, it also means you have options, allowing you to shop around for the best coverage to suit your needs and budget.

With so many factors influencing premiums, choosing the right policy can feel overwhelming. Understanding how insurance premiums are determined puts you in a stronger position to make informed decisions and secure the best coverage at the right price.

Luckily, Greenlight is here to help. Our team of business, personal, rural, and transport insurance brokers has put together a quick breakdown of the fundamentals of insurance premiums. Read on to learn how insurance premiums are determined.  

How are insurance premiums determined?

Insurance premiums vary based on the type of policy you need. Different factors influence how much an insurer might pay out in the event of a claim.

For example, if you insure your car, they might ask you about its worth, what you use it for, where you park it, and how good a driver you are. These factors would have no bearing on a home and contents policy, which would instead be based on factors like the age of your home, the total value of the contents inside, and your property’s location.

Across the board, insurance companies primarily assess risk. They determine how likely it is that your asset will be affected and adjust premiums accordingly. Higher risk generally means higher premiums to account for potential claims.

For example, drivers under 25 typically pay more for car insurance because they are statistically more likely to be involved in accidents. Similarly, homeowners in areas prone to flooding or break-ins may face higher insurance costs due to increased risk.

That said, risk isn’t the only factor at play here. Let’s examine the broader network of factors influencing how insurance premiums are determined.

Factors impacting your insurance premiums:

• The amount insured – Also known as the ‘sum insured’’ this is the amount you’re insuring an asset for. For a car, it’s either the market value or the agreed-upon value, while for a home, it’s the estimated cost to rebuild in case of total loss. The higher the insured amount, the higher your premiums. Since valuations change yearly, it’s important to keep your policies updated to reflect accurate values.
• The insurer’s insurance (Reinsurance) – Insurers purchase ‘reinsurance’ to manage their own risk. If a major event like a natural disaster triggers widespread claims, the cost of reinsurance rises. This increased cost is then passed down to policyholders in the form of higher premiums.
• Government levies – Programmes such as Natural Hazards Insurance (NHI) and Fire and Emergency NZ (FENZ) are funded through levies included in insurance premiums. These levies are mandatory and typically cannot be adjusted.
• Your claims history – Frequent past claims can make you appear riskier to insurers, leading to higher premiums. However, you may be able to manage this by reducing risk factors or working with an insurance broker to find the best options.

As you can see, insurance premiums are determined by various factors designed to weigh and manage potential risks. If you understand these factors, you can work independently or partner with an insurance broker to minimise your risk and bring those premiums down. That’s why the next best question is: how can you find the best insurance rates for your unique circumstances?

How to find the best insurance rates

1. Be clear on your valuation and risk

First, approach insurance with full awareness. Get a proper valuation of the asset(s) you want to insure and understand your risk profile. If you have a history of frequent claims, work in a high-risk industry, or live in a high-risk area, you may need to offset this by taking additional measures to minimise risk.

2. Shop around

Many insurance options are available, and bundling multiple policies can often help reduce your premiums. Take the time to compare different quotes to find the best deal. If you’re unsure, an insurance broker can assist—many have access to exclusive pricing and policy wordings through industry connections.

3. Consider annual payments

Paying your insurance premiums annually instead of monthly or fortnightly can often save you a significant amount of money. This is usually due to the absence of additional recurring fees associated with periodic payments. If you can afford to pay in full upfront, it’s a cost-effective option.

4. Partner with an insurance broker

The most reliable way to secure the best insurance rates in New Zealand is to partner with an experienced broker. A broker can give you insight into the many policies available, your options for reducing premiums, and, if you pick the right local firm, access to industry rates.

Get the best insurance rates with help from Greenlight Insurance Brokers.

Our team makes it easy for you to access a variety of high-quality insurance policies for everything from transport to rural lifestyle security. Get in touch with us today to discuss your needs, and find the right policy with a broker who’s experienced in the market.