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Pricing: The Art of Estimating Everything Else

In: A Risky Business

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  • Catrin Townsend

Abstract

The risk cost is not the only expense for insurers: they also have a host of non-risk costs which need to be covered by the premium. Non-risk costs are costs associated with trading and servicing the policy and any relevant claims. However, insurers have the added complication of how to add this cost into the premium, as the risk costs for each policy differ. There are two main methods for including non-risk costs: a flat amount (e.g., £5 on top of the risk cost), or a proportional amount (e.g., 5% of the risk cost). In order to decide how best to allow for non-risk costs, each source of expense must be understood. We’ll now look at each of these non-risk components in turn.

Suggested Citation

  • Catrin Townsend, 2022. "Pricing: The Art of Estimating Everything Else," Springer Books, in: A Risky Business, chapter 0, pages 191-208, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-11673-5_9
    DOI: 10.1007/978-3-031-11673-5_9
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