Premium Calculation Model Calculator

Calculator Inputs

The page stays single-column, while the input grid adapts to large, small, and mobile screens.

Sum Insured

Maximum covered amount for a claim.

Exposure Units

Policy count, asset count, or normalized exposure.

Base Claim Frequency

Expected claims per exposure unit.

Base Claim Severity

Average claim size before adjustments.

Age Factor

Risk multiplier from age or maturity.

Location Factor

Regional pricing multiplier.

Deductible

Amount absorbed before the insurer pays.

Deductible Sensitivity

Set between 0 and 1.

Fixed Expense

Underwriting or administration cost per policy.

Variable Expense %

Percentage-based operating expense.

Profit Margin %

Target underwriting margin.

Reinsurance Loading %

Cost of risk transfer support.

Inflation Rate %

Used to inflate expected severity.

Discount Rate %

Discounts future premium value to present value.

Policy Term Months

Supports monthly and annual periods.

Claims History Count

Number of prior claims used for loadings.

Claims History Impact %

Increase applied per prior claim.

Catastrophe Loading %

Additional catastrophe allowance.

Tax Rate %

Applied after gross premium is formed.

Commission %

Producer or channel compensation.

Safety Loading %

Cushion against model uncertainty.

Example Data Table

Parameter	Sample Value	Meaning
Sum Insured	500,000.00	Maximum policy limit.
Exposure Units	1.40	Normalized exposure basis.
Base Claim Frequency	0.08	Expected claims per exposure unit.
Base Claim Severity	85,000.00	Average pre-adjustment loss amount.
Age Factor	1.15	Risk multiplier from age effects.
Location Factor	1.10	Regional hazard multiplier.
Deductible	10,000.00	Insured retention before payout.
Expense Fixed	1,200.00	Flat policy expense.
Variable Expense %	9.00%	Percentage expense loading.
Profit Margin %	7.00%	Target margin percentage.

Sample Output from Example Data

Final Premium

20,678.25

Monthly Premium

1,723.19

Rate on Line

4.14%

Pure Premium

11,800.55

Formula Used

1. Adjusted Frequency
Adjusted Frequency = Exposure Units × Base Claim Frequency × Age Factor × Location Factor × (1 + Claims Count × Claims Impact %)

2. Inflated Severity
Inflated Severity = Base Claim Severity × (1 + Inflation Rate) ^ Term Years

3. Adjusted Severity
Severity After Deductible = min(Inflated Severity, Sum Insured) − Deductible
Deductible Factor = max(0.05, 1 − Deductible Sensitivity × Deductible Share)
Adjusted Severity = max(0, Severity After Deductible) × Deductible Factor

4. Pure Premium
Pure Premium = Adjusted Frequency × Adjusted Severity

5. Technical Premium
Technical Premium = Pure Premium × (1 + Reinsurance Loading + Catastrophe Loading + Safety Loading)

6. Discounted Technical Premium
Present Value Factor = 1 / (1 + Discount Rate) ^ Term Years
Discounted Technical Premium = Technical Premium × Present Value Factor

7. Final Premium
Gross Before Tax = (Discounted Technical Premium + Fixed Expense) / (1 − Variable Expense % − Commission % − Profit Margin %)
Final Premium = Gross Before Tax × (1 + Tax Rate)

How to Use This Calculator

Enter the sum insured and exposure units.
Provide claim frequency and severity assumptions.
Adjust age, location, and claims history risk multipliers.
Enter deductible terms and deductible sensitivity.
Add fixed expenses, variable expenses, commissions, and profit margin.
Include reinsurance, catastrophe, safety, tax, inflation, and discount rates.
Choose the policy term in months, then press Calculate Premium.
Review the result cards, breakdown table, and Plotly graph.
Use the CSV or PDF buttons to export the calculated results.

FAQs

1. What is pure premium?

Pure premium is the expected loss cost before operating expenses, commissions, profit, and taxes. It combines expected claim frequency and adjusted claim severity into one core risk figure.

2. Why does the model use a discount rate?

A discount rate converts future premium-related values into present-value terms. It is useful when the policy term extends over time and money today is worth more than money later.

3. How does the deductible change premium?

A higher deductible usually reduces adjusted severity because the insured retains more loss before coverage begins. That lowers pure premium and often lowers the final premium.

4. What is the difference between technical and gross premium?

Technical premium adds risk-based loadings such as catastrophe and safety allowances to pure premium. Gross premium then adds fixed costs and variable loadings such as commissions, expenses, and profit.

5. Can I use monthly policy terms?

Yes. The calculator accepts policy term in months. It converts the period into years internally for inflation and discounting, then also shows a monthly premium output.

6. What happens if variable loads are too high?

If variable expense, commission, and profit percentages become too large, the denominator in gross pricing becomes unstable. The form blocks unrealistic combinations near total exhaustion.

7. Does sum insured directly set the premium?

Not by itself. Sum insured mainly caps severity and helps derive pricing ratios such as rate on line and premium per thousand of insured value.

8. Is this calculator a replacement for actuarial review?

No. This is a practical pricing model for planning, comparison, and education. Formal ratemaking should also consider credibility, regulation, portfolio data, and professional actuarial judgment.