cover - the risks covered by the insurance policy - an insurance policy will give the insured person "overage" or "cover" for certain risks eg fire do so - refers back to the verb decide - instead of repeating the verb, the verb to do is substituted

You have to read it this way: The people who decide {what premium is fair for a particular cover} do so on the basis ... "Do so" refers to "decide": They decide on the basis ...