What is 'premium loading'?

Premium loading refers to the practice of increasing the insurance premium based on the insurer's assessment of the risk associated with a particular policyholder. This increase occurs when certain factors suggest a higher likelihood of a claim being made. For example, if an individual has a history of accidents or traffic violations, the insurer may decide to load the premium to account for the perceived higher risk.

This applied increment serves to ensure that the insurance company can cover potential future claims, maintaining its financial stability while also reflecting the insurance principle of risk assessment. It is a common practice in motor insurance, primarily to properly price the risk involved with insuring different drivers. This practice helps in creating a balance between charging premiums that reflect risk levels and offering comprehensive coverage to policyholders.