How Do Insurance Companies Calculate Premiums in High-Risk Areas or for Preexisting Conditions?

When shopping for health or property insurance, many people are surprised by how much their premiums vary—even for similar coverage. One of the biggest factors behind this variation is risk. Whether you live in a high-risk area prone to natural disasters or have preexisting conditions, insurance companies use a range of criteria to calculate your premium.
This blog explores how insurance companies calculate premiums for people in high-risk zones and those with preexisting conditions, helping you understand what goes into the price of your coverage and how to better prepare.
What Is an Insurance Premium?
Before diving into risk factors, let’s quickly define a premium.
An insurance premium is the amount you pay an insurer in exchange for coverage. This can be paid monthly, quarterly, or annually. Your premium amount is calculated based on your risk profile, which considers multiple personal and external factors.
💡 Tip: The higher the perceived risk, the higher your premium is likely to be.
Key Factors in Premium Calculation
Insurance companies use risk-based pricing models, which means premiums are directly tied to the insurer’s perceived risk of having to pay out a claim. The following key factors are commonly evaluated:
- Geographic location (including high-risk areas)
- Age and gender
- Medical history and preexisting conditions
- Lifestyle habits (smoking, exercise, etc.)
- Type and amount of coverage
- Claim history
How Do Insurers Evaluate High-Risk Areas?
1. Natural Disasters and Environmental Hazards
If you live in a region that experiences frequent wildfires, floods, hurricanes, or earthquakes, you’re automatically considered to be in a high-risk area.
For example:
- California residents face higher homeowners insurance rates due to wildfire risk.
- Coastal Florida residents often pay higher premiums for hurricane insurance.
- People living near rivers or in low-lying areas may face flood insurance surcharges.
Insurance companies use data from FEMA and the National Weather Service to assess your location’s risk.
🔗 Learn more about FEMA risk maps
2. Crime Rates and Urban Density
Urban areas with high rates of theft, vandalism, or property damage are also flagged as high-risk zones. If your ZIP code is associated with a high crime rate, you may face increased premiums on auto or homeowners insurance.
3. Access to Emergency Services
Insurers may also consider how close you live to a fire station or hospital. A longer emergency response time may increase the risk of damage or death, and therefore, increase your premium.
What About Preexisting Conditions?
1. How Preexisting Conditions Affect Health Insurance
A preexisting condition is any illness or medical issue that you had before your insurance policy began. Common examples include:
- Diabetes
- Heart disease
- Cancer
- Asthma
- Mental health disorders
Before the Affordable Care Act (ACA), insurers could deny coverage or charge extremely high premiums to people with these conditions.
Thanks to the ACA:
- Insurers cannot deny coverage for preexisting conditions.
- Premiums cannot be increased solely due to health history.
🔗 More about preexisting conditions under the ACA
2. What Insurers Can Still Consider
Although the ACA prevents discrimination based on health, insurers still consider the following when setting premiums:
- Age – Older adults typically pay more.
- Tobacco use – Smokers can be charged up to 50% more.
- Location – Medical costs vary by region.
- Plan category – Bronze plans have lower premiums but higher out-of-pocket costs.
Risk Pooling and Premiums
Insurance works by pooling risk. When high-risk individuals are added to a pool, it increases the average cost for the insurer. To manage this, companies may:
- Adjust community rating by location.
- Offer high-deductible plans for those with more risk.
- Create special risk categories for people with chronic illnesses.