The Organization and Management of Insurance Companies

Premium: The price of insurance paid external by the insured to the insurer in consideration of the risk assumed and this commitment is its consequence.

There are different types of premiums:

  • natural raw
  • pure premium
  • commercial premium
  • prima level
  • single premium
  • regular premium

Natural raw: In life insurance is the premium depends on the mathematical computation of risk.

Pure premium: The risk premium for other insurance lines external. Commercial premium: this is the premium paid by the insured and actually consists of two parts: natural or pure premium on one side and operating expenses and profit of the insurer on the other. Of these the most important expenses are:

  • Commission on behalf of producers who placed insurance.
  • Collection commission paid to employees by the perception of premiums.
  • Administrative expenses and propaganda.
  • Surcharge fractionation of the premium. The premium can be fractionated by installments, and this gives rise to a surcharge, as usual with forward sales.
  • Safety margin. It is a charge to anticipate any increase in costs external and in particular the possibility of increased risk.

The risk: It is one of the main factors in the insurance business. It is the object of insurance as a preventive measure on an uncertain event, which occurs, requires the insurer to pay the agreed compensation. In the insurance risk it is always uncertain. Even the death of a person to be fatally occur later or earlier, it is an uncertain event liable to make, because we do not know when it happened.

In the case of an uncertain event undoubtedly it cannot depend on the will of the insured since then no possibility of insurance. The risks on things also have a certain regularity which makes insurance matters. The insurer has devoted practice standards to measure these risks and calculate the regulations to be paid to the insurer.

The risk premium determines the charge, and consequently for aggravated risks in relation to the normal risks, the premium will be higher. In the insurance policy the risk assumed by the insurer must be defined very clearly, because it is a major element in this contract.

It is also necessary that the subject matter of the insurance is properly characterized.