Insurance Underwriting – Non-UK (WUE) Practice Exam

Turnover-based premiums are calculated using a rate per thousand of turnover. The premium equals turnover multiplied by the rate, then divided by 1000 to convert the per-thousand figure into a monetary amount. In other words, the rate tells you the cost for each thousand of turnover, so you scale by turnover and apply the 1000 in the denominator to get the correct premium. If you multiplied turnover by the rate without dividing by 1000, you’d be using a per-thousand figure as a simple multiplier and would overstate the premium. If you divided turnover by the rate, you’d invert the relationship, yielding the wrong magnitude. If you used rate divided by (turnover × 1000), the units don’t line up and the result would be nonsensical. So the correct calculation is turnover × rate ÷ 1000.