What is a loading in Insurance? Is it different in Health, Motor and Fire Insurance?

All risks are not same for the insurer, some are of higher degree than the benchmark and some are lower. As insurance operates on the concept of pooling, the cost of insurance which is the premium, if charged same for all risks will be unfair to the people who undertake precautions or anyhow present a low risk to the insurer.

As for example, in fire insurance the premium for a building with state of art firefighting facilities and superior construction cannot be same as of an old building with storage of hazardous inflammable materials. In health insurance the premium for a person of older age will obviously be greater when compared to a person of younger age. In all lines of businesses, the same concept applies that risks with probability of more frequent and severe damage are charged a higher premium and lower risks are charged a lower premium.

In its simplest terms, loading is the extra charge on a premium due to a single or combination of the negative feature of risk. In some cases, the word loading may be used for adding the base premium for including some additional cover or rider in the policy. And on the contrary, a discount on premium is provided for some positive features in the risk.

Discount may also be provided for online policy purchase, referrals, long term policy etc. As discussed earlier, the concept of loading is same across all lines of business but the features of risk or additional facility for which the premium is loaded may be different. As per the title of the article we will discuss the difference of loading in Fire, Motor and Health insurance policy.

The standard fire and special peril policy were governed by a tariff till 2007, the all India fire tariff document sets out the base premium rates to be charged for different occupancies. Generally, in a fire insurance we see loading of premium in the following circumstances:

  • Loading for Kutcha construction – These types of occupancies pose a considerable higher risk of fire damage and thus a loading of 4 per mile was mentioned in the tariff to be charged for such buildings and contents thereof.


  • Floater Policy – This policy is issued for stocks lying at different locations under single sum insured. The rate charged is highest rate applicable to such stocks at any one location with a floater loading of 10%.


  • Claims experience – There is a provision in the tariff to load the premium for claim ratio going above specified percentages accounting for 36 preceding months. As per tariff loading will be from 2.5% to 15% for claim ratios exceeding 30% to 100%. For cases above 100% claim ratio the loading used to be as decided by TAC.


  • For temporary storage of hazardous goods like crackers in shops, there is provision of loading the premium by 10%

After de-tariffication the rating part of tariff was abolished, insurers were free to load or discount the premium as per their perception of the risk but the wordings and term of the policy remained as per the tariff. Although in the price war after the tariff era insurers started to give huge discounts on the fire policy premium, a prudent underwriter will appropriately load the premium considering risky features is the building and contents.

Some of these features may be: closeness in storages areas and buildings, construction inferiority, combustible nature of stocks or contents, deficiency in firefighting measures, increased chances of damage by natural perils like low lying areas for floods, zones with high earthquake damage probability, increased chances of man-made perils like riots and malicious damage etc.

Traditionally In motor insurance, the loading used to be on the basis of the features of the vehicle which is the subject matter of insurance. One of the main considerations was the age of the vehicle, vehicle more than 4 years old to more than 10 years old can attract increased load in premium from 5% to 15% on the own damage premium. Some of the other features considered for loading will be imported vehicles, higher claim history, absence of safety features, accessories installed etc.

With usage-based motor insurance policy gaining popularity the loading of premium will be on a wide range of risk increasing factors like more kilometres driven, rash driving patterns, braking history, acceleration patterns difficult and longer routes and road condition in which the vehicle is used, to name a few.

In health insurance insurers tend to load the premium on features in an individual which increases the risk of a disease or chances of hospitalization. Some factors for which premium are loaded in health insurance are

  • Age – Person with a higher age will attract higher premium than his younger counterpart.
  • Tobacco and alcohol – Usage of tobacco, alcohol and drugs increases the chances of a disease and thus premium is significant loaded in such a case.
  • Medicate state and history – People with pre existing diseases and history of medical condition in family are bound to pay more insurance premium due to loading.
  • Occupation – Some occupation may be riskier than others and thus higher premiums collected.
  • Place of residence – Metro cities will attract higher medical costs and therefore premiums are higher.

However, for one-time surgeries or diseases like cataract surgery, kidney stone operation etc. which does not increase the risk in coming years of the insurance policy, the loading of premium may not be justified.



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