Pricing goods and services is usually just a case of working out how much it costs to deliver the goods or services and adding a profit margin. You might adjust your price to maximise profits or increase demand for your goods or services, but essentially, the formula is fairly straightforward.
It’s not quite so straightforward for an insurance company because they don’t know what their costs will be. They know how much it costs to run their offices and they know what their wage bill will be. But they don’t know how much they will have to pay out in claims when they are setting their prices.
However, insurance companies do have many years of historical claims data and so they can predict what they are likely to have to pay out in claims each year. They use this historical data to set their prices based on their assessment of the likelihood that you will make a claim and if you do, the likely amount of that claim. This means that the cost of your Dog Walking insurance will depend on a number of factors.
The factors used can be broken down into three different types:
- You and your business
- The cover you require
- Your previous claims experience
You & your business
If you have a number of years experience, the insurers will view you as a better risk than they will if you are just starting out in business. As a result, your premium will be lower.
Similarly, if you have had any training or have any relevant qualifications, that will also work in your favour because the insurers will feel that you are less likely to make a claim.
Some insurers will also check your credit rating. This is because they believe that people with a poor credit rating are more likely to cut corners on things like health and safety, and are therefore more likely to have to make a claim.
The cover required
The cover that you require affects your insurance premium in two ways.
First, obviously if you buy more types of insurance cover, more risks are covered and as such, there is a greater chance of you making a claim. This means your insurance premium will be higher, although some insurers will give you a discount if you buy more than one type of insurance from them.
Second, if you insure more property under your property insurance policy, or select higher limits under your liability or personal accident and sickness policy, there is the potential for any claim you make to be for a higher amount and as such, your insurance premium will be higher.
Your liability insurance will also be based on your level of activity. This can be your annual payroll, annual turnover or the number of employees that you have. This is because the more active you are, the more likely you are to have to make a claim.
Your previous claim experience
If you have made previous insurance claims, the insurers will believe that this means you are more likely to make a claim in the future than someone who has never made an insurance claim. As such, your premium will be more expensive than someone who has been claim-free.
Insurers pay more attention to the number of claims than they do to the size of the claims. If you have made ten claims of £500 each, you will be paying more than you would have to have paid had you made one single claim of £50,000.
Most insurers only take claims made in the past five years into account, although some insurers will only use the past three years when they are calculating your insurance premium.
