Pricing Decisions & Loadings

How Underwriters Influence Price

While actuaries set the base rating structure, underwriters adjust the price for individual risks based on their specific characteristics. This is done through loadings (increasing the premium) and discounts (reducing it).

Common loadings in the Ghanaian market:

→Claims history loading: A fleet owner with three at-fault accidents in the past year gets a 25–50% loading on renewal. Poor experience means higher expected losses.
→Adverse features loading: A building with no fire extinguishers, a vehicle with no alarm, a life applicant who smokes: each increases expected claims cost.
→Moral hazard loading: If the underwriter suspects (but can't prove) elevated moral hazard, a loading can compensate. This should be documented and defensible.
→Occupancy loading: A fireworks shop is a higher fire risk than a bookshop. A nightclub is a higher liability risk than an office.

Common discounts:

→No-claims discount (NCD): Motor policies typically offer 20–60% discount for consecutive claim-free years. This is the most powerful retention tool in motor insurance.
→Fleet discount: Insuring multiple vehicles with the same insurer, typically 10–20% for 5+ vehicles.
→Risk improvement discount: The insured installs fire sprinklers, adds a vehicle tracking system, or implements safety training: reward them.
→Long-term client discount: Loyalty should be recognised, though this must be balanced against actuarial adequacy.

The Danger of Under-Pricing

In competitive markets, there's constant pressure to lower premiums to win business. This is dangerous.

Ghana's insurance market has experienced repeated cycles of destructive price competition: particularly in motor and fire insurance. Companies slash premiums to gain market share, then can't pay claims when they materialise. This leads to delayed claims, denied claims, and ultimately to the trust crisis that plagues the industry.

As an underwriter, your job is to price risks adequately: not cheaply. A premium that can't sustain claims is worse than losing the business to a competitor, because:
→The claims will still happen, but you won't have the funds to pay them
→NIC will eventually intervene if your loss ratio is unsustainable
→Your company's reputation suffers with every underpaid or delayed claim
→Your reinsurers will notice and may impose minimum rates or withdraw capacity

The NIC has been increasingly active in monitoring premium adequacy, particularly in motor third-party insurance where minimum rates have been discussed.