How Does my Insurance company determine the premium I pay?

by Free Insurance advice on January 9, 2012 · 0 comments

in Insurance in Nigeria, Insurance Terms and Terminologies


The Premium contributed to the by each subscriber/policyholder is not the same but it is based on various factors depending on the type of insurance cover and other factors such as:

• For Life Insurance


• The Insured person’s age is the most important factor. It is statistically proven that younger people have fewer claims for life and health (except for pregnancy and childbirth), so their will be lower than an older person or someone with health issues


• For Auto (Car) Insurance

• Driver’s age,

• Gender,

• Geographic location,

• type of car and

• Driving history

• Coverage required. For instance, Comprehensive cover with an extension to include Riot, Strikes and Extension is likely to be more expensive than Comprehensive cover without it.


N.B. This is however currently not being strictly practiced in Nigeria because motor insurance is tariff based i.e. fixed by the regulatory body, National Insurance Commission. Rates fixed by NAICOM: Private Motor (10% of value); Commercial- Own Goods (11.5%) Commercial General Cartage (12%); Motorcycle (11%)


• For Fire Insurance

• Construction of Building,

• Location of building,

• Type of cover

• Activities going on in the building. E.g. A bakery will attract higher rate than a

• Loss History (claims Experience)


How do I know if my Insurance company is Viable?

An insurance company needs at least THREE basic things to remain viable:

• A large pool of insureds in a diverse demographic (age, gender, health, location, occupation, history).

• Reliable, current statistics on the probability of loss for each type of insurance offered

• Sufficient premium payments to cover the anticipated losses

The business model is to collect more in premium and investment income than is paid out in losses, and to also offer a competitive price which consumers will accept. Profit can be reduced to a simple equation: Profit = earned premium + investment income – incurred loss – underwriting expenses

It is therefore advisable that check out your Insurance company for the Technical Reserves, Gross Net premium, Expense Ratio, Combined Ratio, Investment Income and other key financial and non-financial variables.

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