Adjustable Premium Policies
An Adjustable Premium policy is when a policy has an initial Deposit Premium paid at the start of the Policy Year, with an Adjustment premium paid or refunded at the end of year, subject to policy conditions, based on comparing Actual to Estimated Figures at policy expiry.
In some cases, such as Fleet Motor, it can also be based on actual figures (vehicle numbers) at commencement versus actual figures (vehicle numbers) at policy expiry.
Insurers will often apply a Minimum Premium, which means that a minimum premium is paid for the coverage. Thus, if a policy was cancelled, or if Actual Figures were less than Estimated figures, no refund would occur.
Various types of policies can be based on Adjustable premiums. These include Workers’ Compensation, Construction, Liability and Commercial Motor Vehicle fleet policies.
A couple of examples of calculation methodology for an Adjustment Premium policy are provided below.
| Example 1 | ||
|---|---|---|
| Deposit Premium | 100% | |
| Minimum Premium | 100% | |
| Policy Inception | Estimated Turnover | $1,000,000 |
| Premium Rate | 1.20% | |
| Original Deposit Premium | $12,000 | |
| Policy Expiry | Estimated Turnover | $1,000,000 |
| Actual Turnover | $1,150,000 | |
| Difference in Turnover | $150,000 | |
| Premium Rate | 1.20% | |
| Adjustment Premium | $1,800.00 |
| Example 2 | ||
|---|---|---|
| Deposit Premium | 100% | |
| Minimum Premium | 100% | |
| Policy Inception | Estimated Turnover | $1,000,000 |
| Premium Rate | 0.80% | |
| Original Deposit Premium | $8,000 | |
| Policy Expiry | Estimated Turnover | $1,000,000 |
| Actual Turnover | $700,000 | |
| Difference in Turnover | -$300,000 | |
| Premium Rate | 0.80% | |
| Adjustment Premium | $0.00 | |
| * Nil Refund due to Minimum Premium 100% | ||
Please take note the Premium Rate and Minimum Premium (where applicable) for your Adjustment policy as this has a direct bearing upon the potential Adjustment Premium paid or refunded at policy expiry.
It is important to note that the application of an Adjustment Clause can vary depending upon the wording of the individual policy, so please read the specific clause in your policy for understanding on how this clause is applied.