Premium Adjustment Clause

Purpose

In long-duration contracts such as health or motor liability insurance, the calculation bases – for example benefits paid, mortality or claims cost – change materially over time. The premium adjustment clause allows the insurer to adjust the premium to these changed bases without having to terminate and re-issue the existing contract, thereby safeguarding the long-term calculation basis for the insured collective.

Effect and limits

The adjustment is usually tied to exceeding a contractually or statutorily fixed threshold and requires notice to the policyholder stating the relevant calculation basis; however, case law does not require the insurer to disclose the exact amount of the change or further calculation details. In health insurance, an independent trustee’s approval of the premium adjustment is additionally required. Absent a valid statement of reasons, the adjustment takes effect only once a corrected notice has been given.

Negotiation and practice

Because the clause is usually statutorily prescribed, it is scarcely negotiable; disputes in practice mainly concern the formal adequacy of the adjustment notice. In motor liability insurance, premium adjustment is frequently combined with a no-claims discount system, so that individual claims history and collective rating adjustment interact. Switzerland and Austria have similar, supervision-led adjustment mechanisms for private health and motor insurance, without their respective insurance contract acts containing a provision comparable to Section 203 VVG; general supervisory principles on risk-adequate premium calculation apply instead.