Gross premium net premium load. Concept, elements and structure of gross premium

Insurance as an institution of financial protection involves transferring to the insurer the responsibility of the insured to bear the risk. A sign of the transfer of such responsibility is the payment of an insurance premium (gross premium, insurance premium), one of the structural elements of which (net premium) is intended for future insurance payments.

The gross premium, or insurance premium, is the amount of insurance payments under an insurance contract, paid by the policyholder to the insurer (insurance organization) for a certain period from the entire sum insured.
The size of the gross premium depends on the amount of the sum insured, the level of risk and the period for which the insurance premium is made. The gross premium structure reflects the economic mechanism of insurance.
Two elements can be distinguished in it - a net premium intended for insurance payments under the terms of the insurance contract, and a load intended to cover the costs of running a business and making a profit from insurance operations (see Fig. 3.4). Note that the net premium calculated per unit of insurance amount, usually equal to 100 rubles, is called the net rate or insurance tariff.
GROSS PRIZE
LOAD Designed to cover the costs of running a business and obtaining planned profits from insurance operations

Note!
The gross premium structure contains two elements - net premium and load.
The ratio of net premium to load may vary and depends on the type and volume of insurance, as well as on the level of business costs. Currently, the share of net premiums for various types of insurance fluctuates between 70-85%.
The special significance of the structural element of the gross premium, intended for the formation of a reserve of precautionary (preventive) measures, determines another option for the structure of the gross premium (see Fig. 3.5).
GROSS PRIZE

Rice.

3.5. Gross premium structure highlighting the preventive action reserve

In general, the net premium may include the following structural elements: risk contribution, risk (guarantee) premium and savings (savings) contribution (see Fig. 3.6).
NET PREMIUM

Rice. 3.6. Possible net premium structure
The risk premium is intended to cover the risk of all types of insurance, i.e. it is used for insurance payments upon the occurrence of an insured event. It is always present in the net premium structure.
The accumulative (savings) contribution is intended to accumulate the amount paid under the terms of a long-term life insurance contract if the insured survives to a certain date (according to the risk of survival). The savings contribution must be invested in order to generate income. It is a structural element of the net premium of long-term life insurance contracts, for example, in mixed life insurance and pension insurance.
The risk (guarantee, or stabilization) premium is intended to compensate for the possible excess of actual payments over the calculated ones, taken into account in the form of a risk contribution. The net premium may not be included in the structure - this depends on the management strategy chosen by the insurer. If he has set himself the goal of conquering the insurance market due to prices lower than those of other insurers, this element (risk premium) is not included in the net premium structure. If the insurer wants to strengthen its financial stability, this element is included in the net premium.
Note! --- -
In the structure of the net premium for risky types of insurance, there is always a risk contribution and there may be a risk (guarantee) premium.
The amount of the risk contribution to the net premium depends on the amount insured and the probability of the occurrence of an insured event.

The size of the risk premium included in the structure of the insurance premium depends on the accepted probability of actual payments exceeding the calculated ones. The lower the specified probability of actual payments exceeding the calculated ones, the higher the size of the risk premium. The relationship between the risk premium and the risk premium for different types of insurance may be different.
Attention policyholder! ^
Payment of the insurance premium means the possibility of receiving insurance payments.
The fulfillment of the insurer's obligations to the policyholders for insurance payments is based on compliance with the principle of pooling economic risk, according to which everything collected from policyholders to fulfill insurance obligations is accumulated in insurance funds. The sources of various insurance funds intended for payments under the terms of the insurance contract are the elements of the etto premium - risk premium, risk premium and savings contribution.
As already noted, the load represents the part of the gross premium intended to cover the costs of running the business and to generate profit from insurance operations (see Fig. 3.7).
The first structural element of the burden - the cost of running a business - relates to the cost of insurance services; the second element is the planned profit of the insurance organization from insurance operations.

Traditional, Specific
typical for insurance,
for any type including:
activities, commission fees, for conducting an examination, issuing a policy, etc.

The costs of running a business are divided into traditional, which occur in any type of business, and specific, characteristic of the insurance business. Specific types of costs include commissions to agents and brokers for intermediary activities in the distribution of insurance products, costs associated, for example, with conducting an initial examination (at the conclusion of a contract), as well as examination carried out upon the occurrence of an insured event, etc.
Note!
The costs of carrying out precautionary (preventive) measures can be:
a) are allocated separately in the gross premium structure - in this case they are not included in the specific costs of running the business;
b) are not allocated separately in the structure of gross premiums - in this case they are included in the specific costs of running the business.
The experience of economically developed countries shows that the share of costs for carrying out preventive measures can be 4-6% of the gross premium, and the share of commissions can reach up to 20% of the gross premium.
The structure of the insurance premium (insurance premium) reflects the intended use of its individual parts.
Note!
The structure of the insurance premium reflects the intended purpose of each of its elements and is related to the financial structure of the insurance organization.

Gross premium, or insurance premium, is the amount of insurance payments paid by the policyholder to the insurer (insurance organization) for a certain period from the entire sum insured. The gross premium depends on the amount insured, the degree of risk and the period for which this insurance premium is made. This period may not coincide in duration with the total insurance period. The gross premium structure reflects the economic mechanism of insurance.

There are two elements in it: net bonus, intended for insurance payments under the terms of the insurance contract, and load, intended to cover the costs of running a business and making a profit from insurance operations (Fig. 10.1). Note that the net premium calculated per unit of insurance amount, usually equal to 100 rubles, is called "net rate".

Rice. 10.1. Gross premium structure

The ratio of net premium to load may vary depending on the type and volume of insurance, as well as on the level of business management costs. Currently, this ratio is changing towards increasing the load share to 15-20%, as is customary in world practice. This trend is mainly due to an increase in the structural element of the load - commission, which indicates the increasing importance of the work of an insurance intermediary (agent, broker), and is largely consistent with world practice.

In general, a net premium may include the following structural elements: a risk contribution, a risk (guarantee, or stabilization) premium and an accumulative (savings) contribution (Fig. 10.2).

Rice. 10.2. Possible net premium structure

Risk contribution designed to cover the risk of all, i.e. it is used for insurance payments upon the occurrence of an insured event. It is always present in the net premium structure.

Risk (guarantee, or stabilization) premium is intended to compensate for the possible excess of actual payments over the calculated ones taken into account in the form of a risk contribution. This premium may not be included in the net premium structure - it all depends on the management strategy chosen by the insurer. If its goal is to conquer the insurance market due to prices lower than those of other insurers, then this element (risk premium) is not included in the net premium structure. If the insurer wants to strengthen its financial stability, this element is included in the net premium.

Accumulative (savings) contribution is intended to accumulate the amount paid under the terms of a long-term life insurance contract - if the insured survives to a certain date (according to the risk of survival). The savings contribution must be invested in order to generate income. It is a structural element of the net premium of long-term life insurance contracts, for example, for survival insurance, mixed life insurance, pension insurance (in this case, the Russian classification of types of insurance is used).

The amount of the risk contribution to the net premium depends on the amount insured and the probability of the occurrence of an insured event. The size of the risk premium depends on the accepted probability of actual payments exceeding the calculated ones. The lower the specified probability of actual payments exceeding the calculated ones, the higher the size of the risk premium. The relationship between the risk premium and the risk premium for different types of insurance may not be the same.

The size of the savings contribution depends on the accepted rule of money turnover (simple or compound interest), the size of the insurance (accumulated) amount paid for the risk of survival, the rate of return promised to the policyholder and the duration of the contract (accumulation period). For a funded type of insurance, the ratio of risk and funded contributions is determined by the terms of the contract.

The inclusion of risk and accumulative contributions in the structure of the net premium is determined by the type of insurance: the risk contribution condition is included in almost all types of insurance, since it provides for risk coverage, and the accumulative condition is only included in long-term life insurance contracts. Thus, with short-term accident and illness insurance, medical insurance or death insurance, property and liability insurance (risk types of insurance), the net premium structure necessarily includes a risk premium, and depending on the chosen company management strategy, it may or may not include include risk premium.

When insuring pensions (long-term type of life insurance), the net premium structure includes a savings contribution, which is intended for payments to the insured person at the risk of surviving until a certain date, for example, until the date of the next payment. Note that for long-term life insurance contracts, which provide for both risk coverage (the risk of death and, perhaps, the risk of an accident) and the accumulation of funds in case of survival. Thus, for mixed life insurance contracts, there is no need to include a risk premium in the net premium, since the role of the risk (guarantee) premium is played by a savings contribution.

In table Table 10.1 presents possible options for the gross premium structure for different types of insurance.

Elements of the net premium: risk premium, risk premium and savings contribution - serve as sources for the formation of special insurance funds - insurance reserves intended for payments under the terms of the insurance contract.

Table 10.1. Gross premium structure options for different types of insurance

Temporary characteristics of the insurance contract	Type of insurance contract	Brugto Prize
		Net premium
		Risk contribution	Risk premium	Savings contribution
Long-term insurance contracts	Life insurance
Short-term insurance contracts	Accident and illness insurance
	Health insurance
	Property insurance
	Liability Insurance

Note: “+” means mandatory inclusion in the gross premium structure; “±” means that the element may or may not be included in the gross premium structure.

As already noted, the load represents the part of the gross premium intended to cover the costs of running a business and making a profit from insurance operations (Fig. 10.3).

The first structural element of the load is business costs- refers to the cost of insurance services, the second element - profit from insurance operations - this is the planned profit of the insurance organization from such operations.

The costs of running a business are divided into traditional, which are typical for any type of business, and specific carried out specifically in the insurance business. Specific types of costs include commissions to agents and brokers for intermediary activities in the distribution of insurance products, costs for carrying out precautionary measures, costs associated, for example, with conducting an initial examination (at the conclusion of a contract), as well as examination associated with the occurrence of an insurance claim. case, etc.

Rice. 10.3. Load structure

The experience of economically developed countries shows that the share of costs for carrying out preventive measures can be 4-6% of the gross premium, and the share of commissions can reach up to 20% of the gross premium.

Concept and structure of gross premium

Definition 1

Gross premium is the amount of money determined by the terms of the insurance contract that the policyholder is obliged to pay to the insurance company for a certain period of time.

In the structure of the gross premium, there is a net premium and a load.

The net premium is necessary to fulfill the insurance company's obligations under insurance contracts. May consist of the following elements:

risk premium intended to cover damage in the event of an insured event;
risk premium required to compensate for increased damage in the event of a possible increase in the likelihood of a risk event;
A savings contribution used only in life insurance and designed to accumulate a specified amount of money during the term of the policy with a subsequent payment.

The risk premium is always present as part of the net premium and is intended to form an insurance reserve fund, and the risk premium is taken into account when calculating the net premium at the discretion of the insurance company and is used to form a reserve fund.

The load included in the gross premium structure represents the costs of the insurance company to carry out its activities and its profit.

Costs include traditional costs that are typical for any business (salaries, rent, travel expenses, utilities, etc.) and specific costs that apply only to the insurance industry (payment of commissions to insurance agents and brokers, implementation of preventive measures , conducting examinations to determine the amount of damage, etc.).

Note 1

Depending on the type of insurance, as well as the costs of the insurance company to carry out its activities, the ratio of net premiums and loads may be different. Most often, 70-80% of the total gross premium is net premium, the rest is load.

In general, the gross rate $Tb$ is equal to:

$Tb = Tn / (100 - N) 100$, where:

$Tn$ – net rate,

$Н$ – load, determined as a percentage of the gross rate.

If the load is determined in rubles, then the gross rate is equal to:

$Tb = Tn + N$

When calculating the gross premium, the most important thing is to determine the optimal size of the net premium, because the subsequent solvency and financial stability of the insurer depends on this. Therefore, increased attention is paid to its calculation.

Calculation of net rates for risk types of insurance

Definition 2

The net rate is an indicator equal to the net premium calculated per unit (usually 100 rubles) of the insurance amount.

The methodology for calculating the net rate for risky types of insurance implies the availability of a sufficient amount of statistical data necessary for making accurate calculations, the conclusion of a large number of contracts (for the same period) is predicted, and it is also assumed that there are no events that could lead to payments immediately several insurance cases.

In accordance with the methodology, the formula for calculating the net rate $Tn$ has the form:

$Tn = To + Tr$, where:

$To$ – risk premium (part) of the net bet,

$Tr$ – risk premium.

The risk premium is calculated as follows:

$To = Q Sb ⁄ S 100$, where:

$Q$ is the probability with which the occurrence of an insured event is possible,

$Sb$ – average amount of insurance payment,

$S$ is the average amount of the insured amount.

$Q = M ⁄ N$, where:

$M$ – number of insurance events that occurred,

$N$ is the number of contracts concluded over a certain period of time.

The average amount of insurance payment is equal to the ratio of the amount of payments for all contracts to the number of contracts:

$Sb = (∑Sbi) ⁄ M$

The average amount of the insured amount is equal to the ratio of the total amount of insured amounts for all contracts to the number of these contracts:

$S = (∑Si) ⁄ N$

The risk premium $Tr$ is equal to:

$Tr = Then α(γ) √ ((1 – Q + (Rb ⁄ Sb)^2) / (N Q))$, where:

$Rb$ – standard deviation of the average insurance payment,

$α(γ)$ is a coefficient that depends on the probability γ chosen by the insurance company that the premiums will be enough to cover the damage. The value is taken from the table:

Figure 1. Coefficient values. Author24 - online exchange of student work

Calculation of net rate for life insurance

The main factors influencing the size of the net rate for life insurance include:

age and gender of the insured person;
duration of the contract and procedure for payment of contributions;
the projected return on funds received by the life insurance reserve fund if they are invested.

The calculation of the net rate is based on data from tables on the mortality of the population of a certain age and average life expectancy.

To begin with, the necessary indicators are calculated

The probability of death in a given year of life $Qx$ is calculated by the formula:

$Qx = Bx ⁄ Lx$, where:

$Bx$ is the number of people who die in the period from $x$ to $x + 1$ years,

$Lx$ is the total number of people who lived to be x years old;

The probability with which a person will live to a given age, $Px$, is equal to:

$Px = L(x+1) ⁄ Lx$, or:

Taking into account the fact that contracts for this type of insurance have a long period of validity, and funds received from the policyholder can be used by the insurance company for investment in order to generate additional income, to adjust the final net rate, a multiplier $V^n$ is used equal to:

$V_n = 1 ⁄ (1+i)_n$, where:

$i$ – rate of return from investment,

$n$ – number of years for which funds are invested.

As a result, the size of the net premium $(Ex)_n$ for survival will be equal to:

$(Ex)_n = (L(x+n) V_n) / Lx S$, where:

$L(x+n)$ – the number of people who survived until the end of the period for which the contract was concluded,

$n$ – the period for which the contract was concluded,

$S$ is the amount of the insured amount.

The net bet on the possibility of death $(Az)_n$ is equal to:

$(Az)_n = (Bx ∙ V + B(x+1) ∙ V_2 + ⋯ +B (x+n-1) ∙ V_n) / Lx ∙ 100$, where:

$Bx, B(x+1)…B(x+n-1)$ – the number of people dying in the period from $x$ years to $x+1$, calculated for each year of the contract period.

When concluding a combined insurance contract for both survival and the possibility of death, the net rate will be equal to:

$Тн = (Ex)_n + (Az)_n$

This method of calculating the net rate is applicable provided that the entire amount of the insurance payment is paid immediately for the entire insurance period. If the policyholder wishes to divide the premium amount into several parts equal to the number of years of insurance, then the amount of the annual payment $P^x$ will be equal to:

$Р_x = (Ed)_x / α_x$, where:

$(Ed)_x$ – size of the calculated one-time payment,

$α_х$ – installment coefficient, which represents the cost of payments in the amount of one monetary unit. In fact, this indicator is close in magnitude to the value of the number of years for which the contract is concluded, but is slightly lower than it. As a result, the amount of annual payments exceeds the value equal to simply dividing the lump sum contribution by the number of years of insurance. In this case, the insurer compensates for the losses it incurs from the inability to invest the entire amount at once and receive income from it.

Calculation of gross premium

The gross premium is calculated based on the gross insurance rate. The gross rate consists of the net rate and the load on the net rate.

Net rate

The net rate is intended to form an insurance fund in its main part, which is intended for insurance payments in the form of insurance compensation and insurance coverage. The net rate is calculated based on the probability of damage to the policyholders. If the terms of the insurance contract provide for several types of insurance liability, then the total net rate may consist of the sum of several private net rates.

Business expenses represent (by analogy with production activities) the cost of insurance operations and include the following expenses:

remuneration of full-time and non-staff employees of the insurance organization;
rental of premises;
payment for electricity, heating, water supply, postal, telegraph, telephone expenses;
travel expenses;
other expenses of the company associated with its activities.

Net rate calculation

The validity of the net rate is of utmost importance for the correct calculation of the insurance rate. It is its correct definition that guarantees the financial stability of the insurer. However, calculating the net rate is the most difficult moment when determining the insurance rate.

The probability of the occurrence of an insured event is determined a posteriori, i.e. based on past experience. In classical theory, the net rate, calculated as a percentage, is the probability of the occurrence of an insured event. For example, if out of one hundred objects with the same value accepted for insurance, on average one object dies during the insurance period, then the probability of such an event occurring or, accordingly, the probability of losses is equal to one percent. Consequently, in order to form an insurance fund intended to compensate for losses, the insurance company must set the net insurance rate at one percent of the insured amount. The ratio between the amount of insurance compensation paid for a certain period and the total insured amount of all insured objects is called the loss ratio of the insured amount. It is this indicator that underlies the calculation of the net rate for the so-called risk types of insurance, i.e. types of insurance not related to long-term life insurance.

Having calculated the average loss ratio of the insured amount for a number of years based on observational data, the insurance company then uses mathematical statistical methods to assess the stability of this indicator. If the dynamic series is sufficiently stable, then the basis for calculating the net rate is the average loss ratio of the insured amount, to which is added a risk premium equal to at least the standard deviation. With this determination of the net rate, it can be stated with a probability of 84% that the loss ratio of the insured amount will not exceed this calculated value. If you add the double value of the standard deviation to the average loss ratio of the insured amount, then the probability that the loss ratio of the insured amount will not exceed this value increases to 98%.

Final formation of the insurance tariff

Having thus determined the value of the net rate, the load is added to it and the size of the insurance tariff is determined. The insurance rate is determined on the basis of special mathematical calculations, which are called actuarial calculations.

Notes

Literature

Kazantsev S.K. Fundamentals of Insurance: Study Guide. - Ekaterinburg: ed. IPK USTU, 1998 ISBN 5-8096-0006-9

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Gross premium net premium load. Concept, elements and structure of gross premium

Calculation of net rates for risk types of insurance

Calculation of net rate for life insurance

Calculation of gross premium

Net rate

Net rate calculation

Final formation of the insurance tariff

Notes

Literature

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