An allowance in the insurer’s premium calculation for possible fluctuations in claims costs. It is added to the risk premium that covers the average claims’ cost for the year. Wide fluctuations in claims experience necessitate a greater contingency cushion than narrow range fluctuations. Other premium computation elements: expenses loading and profit loading.
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The part of the Insurance premium used to cover the possibility of unexpectedly large or frequent losses having to be paid by the Insurer.