The insurance premium (or insurance premium ; English insurance premium , French prime d'assurance ) is the consideration of the policyholder for the insurance cover granted by the insurer in an insurance contract .

## General

In private insurance, the term “contribution” is often used synonymously with the premium , whereby the term “contribution” is often used in accounting . Both terms have established themselves as the terminus technicus , even if the same facts are meant; In the case of a mutual insurance association , the contribution is both the price for insurance cover and the membership fee . In contrast, the only legal term used in the law is “premium”.

The insurance premium is the price that a policyholder has to pay to the insurer for insurance protection in accordance with the insurance contract. Insurance protection is the assumption of certain risks ( risk transfer ) by the insurer.

## Legal issues

In the Insurance Contract Act (VVG), the insurance premium is simply referred to as the “premium”. According to § 1 sentence 2 VVG, the policyholder is obliged to make the agreed payment (premium) to the insurer . Paying the insurance premium is very important. Namely, the time or the first premium is not paid on time, the insurer, as long as the payment is not effected in accordance with § 37 1 AMA par. For resignation right from the contract, unless the policyholder is not the non-payment represented . If the insured event occurs and the policyholder is in arrears with the payment of the premium , the insurer is not obliged to pay according to Section 38 (2) Insurance Contract Act. Insurance cover is therefore denied if the premium is in arrears . In addition to the loss of insurance cover, this can lead to further consequences, for example in the case of compulsory insurance such as motor vehicle liability insurance, a compulsory shutdown of the vehicle (see Road Traffic Licensing Regulations ).

In life insurance , the policyholder can request the conversion of the insurance into a premium-free insurance at any time for the end of the current insurance period in accordance with Section 165 (1) VVG , provided that the agreed minimum insurance benefit is achieved. However, this reduces the insurance benefits provided for in the insurance contract in the event of unchanged premium payment to the premium-free insurance benefits as agreed in the contract for the case of a premium exemption for each point in time.

The start of insurance cover can also be made dependent on the payment of the premium in accordance with Section 51 (1) VVG, provided that the insurer has drawn the policyholder's attention to this requirement by means of a separate notification in text form or by a conspicuous note in the insurance policy .

In the case of premiums that are to be paid periodically, the first or redemption premium is of particular importance in the insurance law of most countries, as insurance cover can only begin with its payment ( material start of insurance ).

The legal consequences listed do not apply to reinsurance and marine insurance .

## calculation

The premium calculation is the systematic determination and calculation of premiums and represents a combination of actuarial calculations and business considerations. Therefore, the calculation of the insurance premium is an object of knowledge of actuarial mathematics and insurance management . The core is the recording of the insurance risk, which is taken into account with the risk premium as the most important calculation basis .

From an actuarial point of view , the risk premium is an imputed component of the total premium ( gross premium ) that is set for the pure assumption of risk:

   Netto-Risikoprämie
+ Sicherheitszuschlag
= Risikoprämie
+ Betriebskostenzuschlag
- Abschlag für Kapitalerträge aus Kapitalanlagen
+ Gewinnzuschlag
+ Versicherungsteuer
= Bruttoprämie


The risk premium consists of the net risk premium as the expected value of the claims expenditure, the gross risk premium contains the safety premium , which is intended to absorb unexpectedly high losses.

The net risk premium results from the number of insured events , multiplied by the benefit per insured event and divided by the number of insurances : ${\ displaystyle NRP}$${\ displaystyle T}$${\ displaystyle D}$${\ displaystyle N}$

${\ displaystyle NRP = {\ frac {{\ text {T}} \ cdot {\ text {D}}} {\ text {N}}}}$.

The frequency of damage results from

${\ displaystyle {\ frac {\ text {T}} {\ text {N}}}}$,

in life insurance it is called the probability of death or in fire insurance the probability of a loss outbreak.

Gross and net contribution

The terms gross contribution and net contribution denote different things depending on the context:

• In the accounting , the gross contributions are the contractual contributions of the policyholder. The net premiums are the portion that remains with the insurer after deducting the reinsurance premiums .
• In the internal calculation of life and health insurance, the part of the contractual premium that remains after deducting all imputed surcharges is referred to as the net premium. It is therefore the part of the contractual contribution that is calculated exclusively to cover the insurance benefits. The part of the contribution including all classic contribution or sum-proportional imputed cost surcharges is referred to as the gross contribution. This differs from the contractual contribution by a unit cost surcharge calculated at a fixed amount per contract and, if applicable, an installment surcharge calculated for short periods. The net or gross premium used in the internal calculation of the insurer are only traditional terms in the context of the technical procedure and have no legal or economic significance for the execution of the contract.

From the customer or sales point of view, the contractual contributions are referred to as gross contributions in contracts with premium offsetting of the profit shares. In this context, the net premium is the amount paid by the policyholder after deducting the surplus portion.

In order to calculate the risk premium, it is necessary to determine how often and to what extent the event to be insured is likely to occur. It must be high enough to cover the expected damage benefits for insured events. The premium risk is the risk that the actual losses from the insurance business in the current financial year will develop worse than the expected loss ratios . It is divided into natural disaster risk , terrorism risk and non-disaster risk including man-made disasters.

As long as a sufficiently high premium can be achieved, risks are also insured. In mathematical terms, the premium rate must be higher than the probability of damage and the security and operating costs surcharge : ${\ displaystyle \ pi}$${\ displaystyle p}$${\ displaystyle \ beta}$

${\ displaystyle \ pi> p + \ beta}$.

The limits of insurability can therefore not only be determined by actuarial criteria, but also by economic ones.

## Accounting

According to Section 36 (1) RechVersV , the "gross premiums posted" are in particular the premiums due in the financial year , even if they refer in whole or in part to a later financial year, plus the ancillary fees of the policyholders in accordance with the collective agreement, even if they are wholly or partially left to the insurance broker or, among other things, contributions that can only be calculated after the balance sheet date.

## economic aspects

In business terms, the insurance premium is the remuneration for the risk transfer of a certain insurable risk to the insurer. The entire insurance business can be understood as a risk transfer between insurer and policyholder in return for premium payment (risk transfer concept). Above all, the premiums must be in a reasonable relationship to the benefits . If an economic entity is affected by an insurable potential risk, it depends on its attitude to risk whether and to what extent it avails itself of insurance cover:

• A risk-taking business entity will be only prepared an insurance premium to pay, under the expected value of the damage is: .${\ displaystyle V}$ ${\ displaystyle E_ {w}}$${\ displaystyle V
• A risk-averse business entity is prepared to pay a higher than expected value premium: .${\ displaystyle V> E_ {w}}$
• A risk-neutral economic agent will be willing to spend an insurance premium that corresponds exactly to the expected value of risk: .${\ displaystyle V = E_ {w}}$

The expected value of the damage ( ) is the decision parameter for the economic subject. ${\ displaystyle E_ {w} \ cdot probability of occurrence}$

The decision as to whether someone actually insures an insurable risk depends not only on the risk attitude but also on whether they have any alternative at all. There is an obligation to contract with compulsory insurance and compulsory insurance . Compulsory insurance is the legal obligation to conclude an insurance contract under private law (such as motor vehicle liability insurance ), while compulsory insurance is the legal obligation to conclude an insurance relationship under public law (such as unemployment insurance ). With both types of insurance, the economic subject concerned has no alternative to making a decision.

From a market theoretical perspective, the insurance market is an economic market in which the demand for insurance protection meets the corresponding offer against payment of the market price (insurance premium). Insurance premiums are costs for the policyholder (more precisely: fixed costs ), for the insurer they are the most important source of income (“premium income”) as actuarial income items in the income statement . The insurance market differs from other markets such as the goods market in that large sections of the population are not aware of their need for insurance protection because they lack an idea of ​​the existing risk situation. In addition, it also depends on the risk attitude of a risk taker whether or not he wants to cover an existing risk with insurance. If he covers it, he becomes a customer; if he does not, there is either self-insurance or non- insurance .

Regular premium payments from all policyholders are intended to ensure that the amount of damage necessary to compensate for the damage is available in the event of an insurance claim. The premium payment can either be made periodically (monthly premium, quarterly premium or annual premium) or as a one-off payment.

## International

In Switzerland , according to Art. 18 VVG-CH, the policyholder is obliged to pay the premium. The premium must be dunned in the event of default; If the arrears still exist after 2 months, the insurer can withdraw ( Art. 21 VVG-CH).

In Austria , the policyholder has to pay the agreed premium in accordance with Section 1 (2) VersVG-A, whereby the contributions paid to the mutual insurance association also count as premium.

## Individual evidence

1. Fred Wagner (Ed.), Gabler Insurance Lexicon , 2017, p. 673
2. Fred Wagner (Ed.), Gabler Insurance Lexicon , 2017, p. 673
3. Springer Fachmedien Wiesbaden (ed.), Compact Lexicon Economy , 2014, p. 439
4. Dieter Farny / Elmar Helten / Peter Koch / Reimer Schmidt (eds.), Handwortbuch der Versicherung HdV , 1988, p. 525
5. Peter Koch, Gabler Versicherungs-Lexikon , 1994, p. 637
6. Dieter Farny / Elmar Helten / Peter Koch / Reimer Schmidt (eds.), Handwortbuch der Versicherung HdV , 1988, p. 525 f.
7. Peter Koch, Insurance Industry: An Introductory Overview , 2013, p. 125 f.
8. Peter Koch, Insurance Industry: An Introductory Overview , 2013, p. 124
9. Alfred Endres / Reimund Schwarze, Are there limits to the insurability of environmental risks? , in: Alfred Endres / Eckard Rehbinder / Reimund Schwarze (Eds.), Liability and Insurance for Environmental Damage from an Economic and Legal Perspective, 1992, p. 87
10. Dieter Farny , Versicherungsbetriebslehre , 2006, p. 8
11. Hans-Bernd Schäfer / Claus Ott, textbook on economic analysis of civil law , 1986, p. 257
12. Katharina Hedderich, compulsory insurance , 2011, p. 2 f.
13. Peter Koch, Insurance Industry: An Introductory Overview , 2013, p. 67 f.
14. Dieter Frany / Elmar Helten / Peter Koch / Reimer Schmidt (eds.), Handwortbuch der Versicherung HdV , 1988, p. 781
15. Springer Fachmedien Wiesbaden (ed.), Compact Lexicon Economy , 2014, p. 585
16. Fred Wagner (ed.), Gabler Versicherungslexikon , 2017, p. 674