What is 'Developed Premium'
A premium based on estimates of a policyholder’s risk profile and other factors, but which might be adjusted once more information about the potential policyholder is obtained. The developed premium is a quote rather than the final premium owed by the policyholder.
BREAKING DOWN 'Developed Premium'
Insurers typically know only basic information about those interested in purchasing a policy until the individual or business provides more detailed information. They typically will provide an estimate insurance premium based on the risk profile of an average policyholder, and then adjust that estimate based on experience modifiers and other types of credits. This allows the final premium owed by the policyholder to better reflect the individual’s risk factors.
Developed premiums include costs that an insurance company faces regardless of the risk profile of the potential policyholder. Costs include personnel salaries, overhead, claims adjusters, vehicles, and other items that the insurer needs to run the business. Insurers may charge a higher rate for policyholders that are more risky, and less for policyholders that are less risky. The developed premium, however, covers the bare minimum of funds that the business needs to stay open.
The developed premium may differ from the actual premium paid for a policy. Differences may arise once the application for the policy has been submitted, since the actual premium can only be calculated once the insurer has all of the applicant's information.
Insurers may charge a percentage of the developed premium – or a minimum amount if greater than the percentage – for certain types of additional coverage on an insurance policy. This coverage is designed to apply to claims that would have otherwise been considered part of an absolute exclusion or other exclusion. For example, a policy application for personal liability insurance may include a terrorism coverage option that costs 2% of the developed premium.