The cost of insurance – known as the premium – is the price the insurer charges to accept business. The price charged by an insurer will depend on a number of factors, such as the nature of your business and the insurer’s own experience of your business sector.

For most small to medium sized risks, the insurer will use a book rate, or average rate, which is based on the claims they have paid out to similar businesses. The insurer will use this rate to calculate the premium using a factor that reflects the amount of activity undertaken by the business. For employers’ liability insurance, payroll is usually used to reflect the amount of activity. For public and products liability insurance, turnover is usually used.

The insurer may adjust the resulting premium to reflect positive features such as a good claims record or good risk management, or negative features such as a poor claims record.

For large or very large cases the insurer may calculate the premium based on the business’ claim record over a number of years, if it is relative stable.

February 14, 2012
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