4 Actual determinants of insurance premiums

Wang Yan
Wang Yan

Global Courant

Without any doubt, insurance is an important mechanism that benefits individuals, states and the nation as a whole. You should or could have had one or more policies because of the peace of mind, confidence and security against financial loss that the insurance provided. Then let me ask this question. Have you ever bothered to know the details of the premium you paid to the Underwriters annually whether it is reasonable or not? The purpose of this article is to put you in the spotlight and to be acquitted of the composition of the premium you paid.

Risk premium: Anyway, insurance is all about risk and in order to properly assess a risk, the insurer needs to know the extent to which that property is exposed to a particular risk. So that part of the premium allocated to the risk element of the coverage is called risk premium, which accounted for about 50% of the total premium.

Expense loading: Based on the literary meaning of expenses. This is the division that covers the costs of the insurance companies, such as overheads, lighting and heating, rent, staff salaries, etc. Conservatively speaking, this will amount to about 25% of the premium paid to the insurers.

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Profit Tax: Insurance operates on the profit center principle just like any other business. To that end, they are in business to make an increasing profit on an annual basis. Based on this fact, the insurer has taken this into account when charging their premium. The profit element is approximately 15% of the premium due.

Contingency loading: As you are fully aware of the fact that the financial market is dizzy and highly volatile. And to make the situation even worse, here comes the problem of the global economic collapse that ravaged the entire world. Guess what, insurers act like a seer (prophet), that is, they have subjected their businesses to reasonable foreseeability. That part of the premium that is used to absorb the effect of poor equity or unfavorable financial year(s) is called contingency.

Here you are, ‘I’m sure you’re no longer a novice when it comes to factors that determine the office premium. Have a good day and see you soon, your insurance intelligence is my concern.


4 Actual determinants of insurance premiums

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