PREMIUMS DIFERENTIATION AS PRECONDITION FOR PROTECTION AGAINST PREMIUM INSTABILITY AND NEGATIVE RISK SELECTION

The forming of Insurer’s tariff s constitutes one of the most important aspects in risk management. This procedure requires the involvement of multidisciplinary experts, i.e. professionals from various fields.
When forming a tariff, it should be taken into account that every premium position (group or subgroup) may encompass the most basic factors that affects the amount of premium while at the same time it constitutes part of the portfolio for which, from the prospective of the insurance business, time-wise and structure-wise risk equalization – the premium is definable. Premium differentiation based on risk factors is important for the stability of the Insurer’s business, as lack of premium differentiation may result in instability and negative risk selection, which then has an impact on the Insurer’s solvency problems.