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Also known as underlying premium or underlying premium, a base premium is the premium amount in an insurance policy that is used to determine the amount of reinsurance premium that applies to coverage. This type of premium is useful for calculating the total premium involved when an insurance provider chooses to reinsure policies issued to clients, effectively transferring the risk associated with those policies to another insurer, while retaining ultimate liability for those policies. Since many insurers routinely work with reinsurance providers to help minimize your risk, calculating your base premium correctly is a very important task.
The process of calculating a base premium generally involves identifying the premium the customer is charged for insurance coverage and then allowing for what is known as a qualifying factor. The rating factor will vary depending on the type of insurance involved, as well as elements that also had some impact on the calculation of the premium paid by the client, such as the location, the age of the insured and other relevant details. After assessing the degree of risk associated with the reinsurance claim, the reinsurer may provide its client with a quote.
If the quote obtained that identifies the base premium and related factors is acceptable, the two providers enter into an agreement that essentially allows the original insurer to continue to interact with the covered party and remain responsible for the arrangements set forth in the insurance contract. What will change is that the reinsurer will pay all claims made and approved in relation to those covered policies. If the reinsurer defaults in any way, the original insurer remains liable to the covered party and will have to settle claims directly.
Since reinsurance is a viable means of reducing the risk associated with many different types of insurance policies, most providers have guidelines for evaluating the base premium. Both individual and group policies can be reinsured, depending on the level of risk that the reinsurer is willing to assume in exchange for the collection of a certain monthly or annual premium. Since premiums of all kinds are subject to revision from time to time, there is always the possibility that the base premium will increase or decrease when it is time to renew the contract for another term, a practice that helps the reinsurer to keep the risk within the established limits. acceptable parameters.