What does setting a premium depend on?

Setting a premium primarily depends on the extent of the exposure. This means that the insurer will evaluate the level of risk associated with providing coverage to the policyholder. Exposure refers to the potential for loss or damage that the insurer will assume. Factors contributing to exposure include the type of coverage requested, the insured property’s value, geographic location, and characteristics of the insured that may influence risk, such as occupation or leisure activities.

While aspects like an insurance company’s popularity, the history of past claims, and the insured’s credit score can play a role in underwriting and approval processes, they are not the primary determinants of premium calculations. A strong understanding of exposure allows insurers to estimate the potential frequency and severity of claims, which directly impacts the premium costs charged to policyholders.