Final answer:
Insurance companies calculate premiums based on the need to cover claims, operational costs, and profits, with adjustments made for specific risk factors of different groups or individuals. For example, if the total cost of expected claims is $186,000 and there are 100 drivers, each driver's annual premium would be $1,860, before considering additional costs and profit margins.
Step-by-step explanation:
The common formula for the premium for an Excess policy is not directly provided, but the principle behind calculating the premium can be understood. Essentially, insurance companies need to collect enough in premiums to cover expected claims, operational costs, and to make a profit. For each individual or group, the premium is often determined by assessing their specific risks and the likelihood of claims occurring, which are outlined through risk groups and actuarial fairness.
For example, if an insurance company needs to collect $186,000 to cover the expected costs for claims in a year, and there are 100 drivers in the policy group, each driver would need to pay an annual premium of $1,860 to meet these costs. This simple division does not take into account administrative costs or profits which would be added on top of the total claims cost to arrive at the final premium figure for the drivers. Adjustments for specific risk factors of different groups or individuals would further refine the premium calculations.