Insurance is a business and any business needs to make a profit to stay in business. In the insurance field very careful calculations must be made as insurance companies are in the business of risk. When dealing with short term insurance the risk is not a certainty but a possibility, making it even more difficult to calculate properly. Car Insurance is particularly difficult to calculate as there are so many factors that need to be taken into account such as the type of car, the person applying for insurance and the many perils (risks) involved in the insurance of a moveable asset.

Insurance companies make use of actuaries who are specialists in their field and who have made a study of insurance risks. Actuaries make use of statistics on all possible risks and previous claims history. Like any other business insurers need to build the cost of running their business into the price of the product they sell. In the insurance business the price of the product will be the monthly insurance premiums payable by the insured clients.

Included in every premium will be the insurer’s calculated cost for the administration of the insurance policy. This part of the premium is called the expense loading.