How are an insurer's premium rates for a scheme policy compared to a packaged commercial policy likely to be set?

When an insurer sets premium rates for a scheme policy, they often price these at a lower level compared to a standard packaged commercial policy. This approach typically reflects the characteristics and risk management benefits of scheme policies.

Scheme policies are designed for specific groups or types of businesses that may benefit from reduced risk due to standardization, combined buying power, or better loss experience. Insurers can leverage data from these grouped customers, allowing them to predict potential losses more accurately and price the coverage more competitively while still maintaining profitability.

Additionally, scheme policies often have a streamlined underwriting process and standardized terms, which can reduce administrative costs for insurers. This efficiency can lead to lower premium rates, making them attractive to businesses that might otherwise be priced out of comprehensive commercial coverage.

In contrast, packaged commercial policies typically cater to a wider range of buyers without the benefits of grouped risk, resulting in higher premium rates to account for the greater variability and uncertainty associated with these individual policies. Therefore, setting scheme policy rates at a lower level aligns with the insurer's strategy to attract and retain clients within certain market segments.