An underwriter's quote is the price of a specific set of promises: what the insurer will pay, for which events, up to what limit, provided the picture of the business given at application turns out to be accurate. Reaching that price involves three distinct kinds of work, and only one of them is arithmetic.

The rating model does the arithmetic

Most of a quote comes out of a rating model: a formula that takes known factors, trade, location, turnover, claims history, sums insured, and runs them against a base rate set for that class of business. This is why a shop selling the same stock from two different postcodes can be quoted two different premiums. The model treats location as a rating factor because claims experience for that trade varies by area.

Judgement covers what the model doesn't reach

Not every risk fits the model cleanly. A business with an unusual mix of trades under one roof, a claims history that sits outside the model's assumptions, or a submission that raises a question the standard form never asked, gets referred to an underwriter to price by judgement. This is where two businesses with near-identical rating factors can still end up on different terms: the model sets a starting point, and the underwriter decides whether that starting point actually holds for this business.

The disclosure the price is pricing against

Whatever figure comes out the other end, it is priced against what the business told the underwriter. The duty of fair presentation under the Insurance Act 2015 requires a commercial policyholder to disclose every material circumstance it knows, or ought to know after a reasonable search, before the price is fixed. That duty applies to commercial policies specifically; consumer insurance instead runs under the Consumer Insurance (Disclosure and Representations) Act 2012, which asks the policyholder to answer the questions put to them. A quote built on an incomplete presentation is a quote for a different risk than the one the business actually carries, and that gap is usually where a declined claim starts.

The sections that follow set out each of these pieces in turn: how trade classification and rating factors set the starting price, what claims history and appetite do to it, and why the figure a broker comes back with can differ from the one a scheme rate would have produced. Read How to Get the Right Quote for the Right Cover for what a business can actually control in that process, and check The Small Print, Translated when a term in your own quotation isn't explained on the page it appears on.

The first thing an underwriter does with a new submission is decide what the business actually does, because everything else in the quote is built on that decision. A business is placed into a trade classification, a category that groups it with others doing broadly similar work, and that classification carries a base rate reflecting how that trade has performed across the market over time. A hairdresser, a scaffolder and a firm of accountants sit in different categories because they carry different kinds of risk, and the rate starts from there before anything specific to the individual business is added.

The trade code has to match the work.

The description given on the proposal form needs to describe what the business genuinely does, because the classification only works if it's accurate. This is where the duty of fair presentation under the Insurance Act 2015, section 3, comes in for commercial policies: the business must disclose every material circumstance it knows or ought to know after a reasonable search, which includes describing its trade properly. Consumer policies work differently, governed by the Consumer Insurance (Disclosure and Representations) Act 2012, which sets a different disclosure standard, so the distinction matters if the business also holds a personal policy alongside its commercial one. Misclassifying the trade doesn't just risk a wrong price. It risks the insurer treating a claim as outside what was disclosed at all.

What sits on top of the base rate

Once the trade classification is set, the underwriter builds the rate up with factors specific to the business:

• The postcode, which feeds data on flood risk, subsidence-prone soil, local crime rates and distance to the nearest fire station
• The construction of the premises, since a steel-framed building with a modern roof rates differently to an older timber-framed one
• Security measures in place, such as intruder alarms, sprinklers or CCTV
• The sums insured, which set the ceiling of what the insurer could have to pay
• Wage roll or turnover, which drive liability rating because they're a proxy for the scale of activity and the number of people exposed to it

Why the same shop in two postcodes gets two prices

Two shops selling identical stock, insured for the same amount, can still receive different premiums purely because of where they stand. One postcode might sit on a flood plain or over clay soil prone to subsidence; the other might not. One might have a fire station two minutes away; the other, twenty. None of that reflects anything the business owner did, but all of it feeds the location data the underwriter's model uses, and location is rated independently of trade.

The trade code and the rating factors explain how the number is built. What the underwriter does with a patchy claims record, or when a risk sits outside their usual appetite, is a separate question, covered in the next section. For definitions of terms like sum insured, rebuild cost or reinstatement value, the glossary sets them out in plain terms, and how to get the right quote for the right cover looks at what a business can do with that information before it talks to a broker.

An underwriter looks at what has already happened to a risk before deciding what to charge for insuring it again. A claims history is the record of every claim made against a policy, win or lose, paid or repudiated, and it tells the underwriter something the proposal form cannot: how the business actually behaves under pressure.

What the claims history is really being read for

Two businesses can answer the proposal form identically and still get different terms, because one has three years clear and the other has had two claims for the same cause. A repeated cause, a burst pipe twice, a theft twice, tells the underwriter the risk was not fixed after the first payout. That reads differently from one large claim caused by a one-off event, which the underwriter can usually price as bad luck.

The loss ratio behind the rate

Insurers track the loss ratio, the relationship between claims paid out and premium collected, at every level: per trade, per broker scheme, per individual policy over several years. A trade class running a poor loss ratio across the book gets a higher base rate for everyone in it at renewal, whatever any single policyholder's own record looks like, because the class as a whole is not paying its way. This is why a trade can see its rates move even when nothing about a particular business has changed.

When a risk sits outside appetite

Appetite is the set of risks an insurer is currently willing to write, shaped by its reinsurance arrangements and how much capital it has allocated to a class or region at that point in time. A risk can fall outside appetite because of the trade itself, the location, or a claims history that shows a pattern the insurer has decided not to carry. Outside appetite does not always mean a flat refusal: it can mean referral to a specialist underwriter, a higher excess, an exclusion on the specific peril that has already claimed twice, or a price that reflects the risk. A flood claim followed by a second flood claim at the same premises, of the kind described in The Restaurant That Was Flooded Twice, and Paid Once, is exactly the sort of history that pushes a renewal from automatic acceptance to manual referral.

Capacity and why one insurer says no and another says yes

Capacity is the most an insurer will commit to a single risk or across a group of related risks combined. Accumulation is the reason capacity gets managed so carefully: if an insurer writes too many policies exposed to the same event, a flood across one postcode, a fire in one industrial estate, a downturn in one trade, then one event can hit a large slice of the book at once. Insurers control this by capping how much of a given peril or postcode they will hold at any time, which is why a broker sometimes has to place a risk with a different insurer even though the terms on offer look identical to last year's.

None of this is visible on a quotation itself. The number on the schedule is the output of a claims history read against a loss ratio, checked against an appetite, and fitted within whatever capacity remains for that class at that moment.

Scheme rates and referrals

A quote built on a scheme rate comes from a rating table the underwriter never has to think about: the trade code, the turnover band and the postcode go in, and a premium comes out, calculated to a formula the insurer fixed in advance. A quote that has gone to referral means an underwriter looked at the risk individually, because something in the proposal, a claims history, an unusual mix of trades, a sum insured above the scheme's ceiling, took it outside the automatic bands. The two processes can produce different prices for what looks, on paper, like the same business, because the referral price reflects a judgement the scheme rate never made.

This is why moving a client from one insurer's scheme to another insurer's referral desk, or the reverse, can bring back a materially different figure without anyone having done anything wrong. Neither price is more correct. One is a formula; the other is an opinion, shaped by that insurer's appetite and the individual file in front of the underwriter.

What a broker negotiation actually changes

A broker cannot make an underwriter charge less for an unchanged risk out of goodwill, but a broker can change what the underwriter is actually pricing. Presenting a claims history with context, a one-off admitted liability claim explained rather than left as a bare figure on a loss run, changes the underwriter's view of the risk, not just the number attached to it. A broker can also move the business to a different market: a scheme built for the trade, a different indemnity limit, a higher voluntary excess taken on in exchange for a lower premium. What a negotiation changes is the information the underwriter is working from, or the shape of the cover being priced. It does not change the underwriter's mood.

Reading a quotation before you agree to it

A quotation is a set of specific promises attached to a price, and the specifics decide what happens when something goes wrong. Before comparing one quotation against another, it is worth checking what each one is actually promising:

• The sum insured, and whether it is close to the true rebuild or replacement cost: a sum insured set too low can trigger average and cut the eventual payout in the same proportion as the shortfall.
• The excess, and whether it applies per claim or per policy year.
• Any warranty attached to the cover, such as an alarm to be set or a certain lock fitted, because a warranty is a condition of the cover operating at all, not a recommendation.
• The indemnity period on business interruption cover, and whether it is long enough to cover the realistic time a rebuild or recovery would take.
• The aggregate limit caps what the insurer will pay across every claim in the year.

Two quotations that differ mainly in price are usually differing in one of these terms as well, and the cheaper figure is often cheaper because it promises less. The glossary sets out what each of these terms means in the words an insurer actually uses on a schedule, and how to get the right quote for the right cover works through what to check before accepting one.