Insurers follow a structured approach to a price premium for underwriting each risk. That’s how a premium is decided to be charged for property insurance. Below is the list of steps that they take –
- Assess the quantum of risk at each location – Insurers assess each proposal with information on the quantum of the sum insured at a single location. They will prefer to underwrite proposals where the quantum of risk is well dispersed across multiple For example it is safer to underwrite 6 factories of the sum insured 50 Cr. each at multiple locations v/s underwriting single factory of total sum insured 300 Cr.
- Determine the quality of risk through a survey – To gain confidence in an asset’s risk profile, insurers require a risk assessment survey to provide them with holistic information on operations performed at the premise and safety features in place for loss minimization in case of adversity.
- Past claims information – Every insurer seeks information on past claims. With past claims data, an insurer is able to ascertain whether the asset is subject to frequent Higher claim frequency, riskier the asset.
- Revisit re-insurer contracts to assess their capacity – Each insurer has a re-insurer treaty in place for fire insurance i.e. the underwritten risk is shared between the two as per treaty terms. Depending on the nature of operations carried out within the asset premise, each insurer can underwrite up to a certain limit which is specified in the re-insurer treaty.
- Charge minimum threshold premium – After an insurer understands the risk profile of the asset in detail, it may quote a premium to cover the risk which is in compliance with Insurance Information Bureau (IIB) tariff structure. Insurers are instructed by GIC Re (General Insurance Corporation of India) to charge a minimum threshold premium for each occupancy as per the IIB tariff structure.