How Insurance is Priced

Jonathan Harper

Business Development Manager

Strate Insurance Group, Inc.

Insurance can be a complex topic. Many of my clients struggle to understand how their insurance is priced. I tell them the formula is very simple.

Premium = (Past Losses + Current Exposure) x Market Representation

We rely on quantitative data like past loss history and a business’s current exposure to define the basics of underwriting. Loss history is claims data. Current exposure describes what kind of work a client does, who is performing the work, who their clients are, and more.

There is a human component to underwriting that cannot be overlooked: Market Representation.

Market Representation is an extra step taken by smart, meticulous, and inquisitive risk management advisors who see the value in selling the client to the insurance company underwriter. It requires more knowledge and understanding than what is found on insurance applications.

Market Representation can make all the difference in how premiums are priced. Insurance company underwriters often do not have a full understanding of the risk if they are just looking at data from applications. They need an insurance advisor to explain the risk in more detail and with greater context.

An insurance agent only asks questions to fill out an application. A risk management advisor asks questions to learn and understand.

An insurance agent only reports loss history. A risk management advisor reports past losses with an explanation of prevention measures and processes a company has implemented to prevent future losses from occurring.

An insurance agent only reports last year’s sales and payroll data. A risk management advisor gets an underwriter excited about the company’s growth and expansion plans and its vision for the future.

If you work with an agent but believe your business could benefit from working with an insurance advisor, I would love to talk to you. Call me at 423-534-4725, or email me at