What is the main factor that influences the risk premium element of insurance premium rates?

The main factor that influences the risk premium element of insurance premium rates is claims costs. The risk premium represents the insurer's estimation of the potential costs they may incur due to claims filed by policyholders. This involves assessing various elements such as the frequency and severity of past claims, expected future claim trends, and overall risk associated with the insurable event.

Claims costs directly impact how much an insurer needs to charge in premiums to maintain financial stability and meet their obligations to policyholders. If claims costs are expected to rise, whether due to an increase in risk or higher expenses associated with payouts, the risk premium will similarly increase to ensure sufficient funds are available to cover those claims.

In contrast, while taxation liabilities, administrative expenses, and investment returns can affect the overall pricing of an insurance product, they do not directly influence the risk component of an insurance premium. They may contribute to the profit margin or overall operational costs but do not inherently alter the assessment of risk associated with claims.