Premium

The premium is the price of insurance and represents the insurer's assessment of the risk being transferred. In India, the general insurance market transitioned from a tariff-based regime to a de-tariffed (free pricing) regime on 1 January 2007, following IRDAI's de-tariffing order. This means that for most commercial lines — fire, marine, engineering, liability — insurers are free to set premium rates based on their own underwriting assessment, loss experience, and competitive positioning.

Premium calculation in the Indian market considers multiple factors. For property insurance, these include the nature of the property, construction type, fire protection measures (as per the Tariff Advisory Committee's legacy classifications), occupancy hazard, claims history, and sum insured. For marine cargo insurance, factors include the nature of goods, packaging, mode of transport, route, and the insured's claims experience. Liability insurance premiums depend on the nature of business, turnover, number of employees, past claims, and jurisdiction exposure.

IRDAI mandates that all general insurance premiums in India are subject to Goods and Services Tax (GST) at 18%, which the insured must pay in addition to the base premium. This is a significant cost consideration for Indian businesses when budgeting for insurance expenditure. Premiums are also subject to stamp duty as per the Indian Stamp Act, 1899, with rates varying by state.

Payment of premium is a critical aspect under Indian insurance law. Section 64VB of the Insurance Act, 1938 mandates that no risk can be assumed by the insurer unless the premium is received in advance. This 'no premium, no cover' rule is strictly enforced by IRDAI, with limited exceptions for government business and certain reinsurance arrangements. Indian businesses must ensure timely premium payment to avoid gaps in coverage.

Premium payment modes available in the Indian market include lump sum annual payment, instalment payments (quarterly or half-yearly, subject to insurer approval and an instalment loading), and long-term premium arrangements for multi-year policies. Large Indian corporates often negotiate premium payment through their IRDAI-licensed insurance broker, leveraging competitive quotations from multiple insurers to secure optimal rates.