For an insurance product, the factors that affect its price can be summarized as the following three points: predetermined incidence rate, predetermined interest rate and predetermined expense rate. Taking life insurance products as an example, the predetermined incidence rate is the mortality rate of people of all ages, the predetermined interest rate is the predetermined investment return rate of premiums, and the predetermined expense rate is the operating cost and profit of insurance companies.

Correspondingly, the insurance premium can be divided into three parts: risk premium, savings premium and additional premium. The first two can be understood as the intrinsic value of the policy and the necessary input of underwriting. Additional premium can be understood as the premium paid by the insured to the insurance company to obtain insurance protection.

Predetermined incidence and risk premium

Insurance is also a commodity, so there must be a cost. Insurance cost is the price that the insurance company must pay for the risk transferred by the insured, and it is based on the estimation of the probability of future risk events.

The expected incidence rate is calculated based on the life cycle table and the empirical incidence rate table of major diseases. The former is a life table compiled by Chinese insurance companies according to the actual death data of the insured in a certain period of time; The statistical logic of the latter is the same, except that the statistical death data is changed into the statistical data of the insured suffering from serious illness.

Generally speaking, insurance companies in a country or region will share a set of life cycle tables, so the cost of insurance companies with similar responsibilities is similar. However, it is different in different regions and countries. A typical case is that life insurance in Hong Kong is cheaper than mainland insurance with the same content. An important reason is its low risk cost.

In practice, when the probability of actual risk is greater than the expected probability, the insurance company will suffer death. Insurance companies have incurred losses in this part of premium design, which is also the source of the concept of dead difference.

Predetermined interest rate and savings premium

To put it simply, the predetermined interest rate means that the insurance company invests the customer's premium and promises to give the customer a rate of return. For the guaranteed personal health insurance, the predetermined interest rate directly affects the price of the product. The lower the predetermined interest rate, the less profit the insurance company gives to consumers, and the more expensive the premium of the product; The higher the predetermined interest rate, the more profits the insurance company will give consumers, and the cheaper the premium of the product.

Insurance is a financial tool, and the generation of predetermined interest rate reflects the investment demand of the insured. The essence is that insurance companies subsidize part of the income from premium investment to policyholders in order to compete. When an insurance company makes a promise, it must fulfill it, so this part of the deposit belonging to the insured is also a part of the insurance company's liability reserve, and this part of the premium that the insured has kept in his account over the years is its cash value.

Although the cash value is in the account of the insurance company, the ownership belongs to the insured and has absolute control. If you surrender, you must return it to the insured in full.

When the investment income of an insurance company is greater than the predetermined interest rate promised to the insured, the income belonging to the insurance company is formed, which is called spread.

Pre-determined rates and additional insurance premiums

The predetermined rate refers to the proportion of the insurance company's operating expenses to the total premium. The predetermined cost forms an extra premium, which can be divided into two parts. One part is the cost of selling this product, including advertising fees and labor wages. There is also a part of the profit category. Insurance companies directly add their expected rate of return to the pricing of insurance products, but not all insurance products have it.

The difference between the scheduled expense rate and the actual expense rate constitutes the expense difference of the insurance company, which is another source of profit and loss of the insurance company and needs to be determined by comparing the actual investment with the budget.

We generally think that the higher the additional premium, the greater the proportion, and the more unkind it is to the insured. If an insurance company can sell products with high additional premium for a long time, it must have some competitiveness or resource advantages that other peers do not have.

In a word, the predetermined occurrence rate, the predetermined interest rate and the predetermined expense rate determine the price of insurance products, which correspond to the three components of premium. The profit source of an insurance company consists of dead difference, spread and fee difference, and its essence is the difference between the preset rate and the actual rate.