Factors considered by the insurer when determining premium

• The nature of the property being insured. Delicate and fragile property/ goods to handle e.g. petrol stations attract higher premium than obvious goods.

• The number of people exposed to the same risk. The bigger the number the lower the premium because the cost is spread than when the number is small.
• The frequency of the occurrence of the risk being insured. The higher the possibility of occurrence of the risk the higher the premium paid than where the possibility of occurrence is low.
• Operating expenses of the insurer. Higher administrative costs and rates of claim of compensation attract higher premium than lower administrative operating expenses.
• The desired profit margin of the insurer. If the insurer aims at making high profit then a higher premium is charged than when the insurer aims at sale maximization.

• Precautions taken by insured to reduce the risk. Availability of precautions like fire extinguishers in building, safety belts in vehicles tend to reduce premium rates than where there are no premiums completely.
• Type of policy to be bought. Short term policies mostly attract less premium than long term policies
• Value of the property to be insured. Expensive good attract higher premium than cheap goods.
• Age of property. Old articles and items face higher chances of damage hence attract higher premium than new articles

• Level of incomes in case of life insurance. High income earners are charged higher premium as their beneficiaries have to be given higher compensation than low income earners.

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