Rate Making
Process of calculating a premium so that it is adequate-sufficient to pay losses according to expected frequency and severity, thereby safeguarding against the insurance company becoming insolvent; reasonable-the insurance company should not be able to earn an excessive profit; and not unfairly discriminatory or inequitable. Theoretically, it can be said that each insurance applicant should pay a unique premium to reflect a different expectation of loss, but this would be impractical. Instead, classifications are established for applicants to be grouped according to similar expectation of loss. Statistical studies of a large number of nearly homogeneous exposures in each underwriting classification enable the projection of losses after adjustments for future inflation and statistical irregularities. The adjusted statistics are used to calculate the pure cost of protection, or pure premium, to which the insurance company adds on loads for agent commissions, premium taxes, administrative expenses, contingency reserves, other acquisition costs, and profit margin. The result is the gross premium to be charged to the insured.
Popular Insurance Terms
Type of major medical deductible amount that acts as a corridor between benefits under a basic health insurance plan and benefits under a major medical insurance plan. After benefits are ...
Same as term Fortuitous Loss: loss occurring by accident or chance, not by anyone's intention. Insurance policies provide coverage against losses that occur only on a chance basis, where ...
Measure of the sensitivity of the insurance company's liability to changing policy surrender distributions. ...
Payments awarded by a court in a liability suit. Money damages can be broken down into compensatory and punitive. Compensatory damages reimburse a plaintiff for expenses incurred for such ...
Maximum amount under a liability policy that insurance company will pay for bodily injury incurred by any one person in any one accident. ...
Means of ending a pension plan only for reasons of business necessity, following IRS regulations. If the IRS determines that the plan was terminated for other reasons, employee and employer ...
Annuity contract. If the annuitant dies before receiving income at least equal to the premiums paid, a beneficiary receives the difference in installments. If the annuitant lives after the ...
Time period, for a life insurance policy, in which losses occur. This period must be determined to project the frequency and severity of future loss experience. ...
Same as term Builders Risks Forms: types of contracts that insure building contractors for damage to property under construction. The completed value form requires a 100% coinsurance ...
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