SUREWiSE - South Australia’s Insurance Brokerages

How Premiums are Calculated

How Premiums are Calculated

What is an insurance premium?

When you purchase an insurance policy, the amount you pay is referred to as the ‘premium’ and can be located on the schedule of insurance.

The total insurance premium is made up of a number of charges which may include some or all of the following (depending on a number of factors):

  • The amount the insurer charges for accepting to cover the risk
  • Terrorism charges – if applicable to the risk
  • Fire Services Levy (FSL) – if applicable to the risk in your state or territory
  • Government Sales Tax (GST)
  • Stamp Duty – if applicable in your state or territory

Intermediaries such as insurance brokers, insurance agents and underwriting agencies for example, may also charge a fee to cover the costs of them providing a professional service. This type of fee is often referred to as a broker fee, administration fee or levy, among others.

How do insurer’s calculate a premium?

Insurers rely on a range of information such actual, forecast and statistics to help them calculate a premium they want to charge for accepting a particular risk.

Every risk is different and can incorporate different rating factors which affect the premium. A premium is also determined by the level of cover you choose.

For example, an insurer may consider the following types of information when deciding what premium to charge for a home & contents insurance policy:

  • The type of insurance policy (or the level of cover) you choose
  • Optional extra cover you may choose to include in your policy
  • How your home is occupied and used (ie. residential only or part residential and part business, etc.)
  • The location of your home (ie. taking into consideration local thefts, break-ins, natural disasters, flood risks, bushfire risks, cyclone risks, etc.)
  • The construction of your home (ie. the age of the home, what materials were used, etc.)
  • What security measures are in place (ie. monitored alarm, local alarm, window locks, deadlocks, window locks, etc.)
  • The value of your home and contents
  • The value of your personal valuables
  • The type and value of special or high value items
  • Your claims history
  • The excess you choose should you need to make a claim
  • Among others

Why do premiums change?

Insurance premiums often change even when you renew a policy.  They may also change if there’s no change to your circumstances. That’s because a premium is calculated based on a variety of factors which impact the total cost to you.

Like any market, the insurance market experiences different cycles that can affect your premium and will depend on what stage of the cycle we’re in. A “soft market” is when insurers are chasing market share and are competitively priced. A “hard market” is when higher premiums are charged for risks due to factors such as the economy or claims performance, for example.

Premiums may increase or decrease when there are changes to your risk. Insurer’s may also set minimum premiums for a type of risk which is also subject to change.

Here’s a few examples why premiums may change:

  • Your risk may be rated differently by insurers (especially after a claim, a natural disaster, new statistics or government data, etc.)
  • Changes you make to the risk
  • The number of claims received by you or by others in your industry or sector
  • Changes to the value or quantity of what you are insuring
  • Inflation
  • Changes in Government taxes, duties or levies
  • Impacts to the insurer’s financial performance
  • The insurer’s investment performance and returns
  • The costs incurred by the insurer for running their business
  • Regional or global changes
  • Costs of obtaining re-insurance
  • Among others

What can influence a premium?

When an insurer calculates an insurance premium, they consider a wide range of factors which can be different between risks. It’s important to remember that not all risks are the same (even if they appear to be).

Let’s look at what can influence your insurance premium:

  • The type and level of insurance cover you choose
  • Additional optional benefits you choose
  • What sums insured or indemnity periods you choose
  • Changes to your risk
  • Your previous claims history
  • The excess you choose should you need to make a claim
  • The insurer’s assessment of your risk
  • Government taxes, duties or levies
  • Discounts
  • Your payment method
  • Among others

How can I manage my premium?

Always discuss your individual needs and requirements with our insurance experts who will work with you to recommend and tailor an affordable insurance program for you. Never under-estimate the expert advice you receive from a qualified and experienced insurance broker.

When reviewing your insurance consider the following:

  • Increasing an excess may reduce a premium but will increase your exposure in the event of a claim
  • Decreasing an excess will reduce your exposure in the event of a claim but may incur a higher premium
  • Review your risk and make changes to lower the risk which may lower your premium
  • Talk to your insurance broker who will work with you to help manage your insurance cover and premium
  • Review how you pay for your insurance because cash flow can often be improved with premium funding
  • If you choose to shop around, remember that insurance policies are not all the same so you’ll rarely be comparing ‘like for like’ cover

Need an insurance quote?

For professional advice and to request an insurance quote, click on the ‘Get A Quote’ link below to provide us with your details and one of our qualified & experienced insurance brokers will contact you as soon as possible.

Alternatively, contact us today on 1800 273 256 to speak to an insurance expert.



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