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
Model state law of the NAIC setting general standards for group life insurance contracts. It specifies which types of organizations can sponsor group life insurance plans and outlines the ...
In a mercantile open-stock burglary insurance policy, the dollar amount of coverage as required by the COINSURANCE clause. This dollar amount is the MAXIMUM PROBABLE LOSS (MPL) of ...
Coverage in the event an employee is kidnapped from an insured business's premises and forced to return to aid a criminal in a theft. ...
Same as term Burglary Insurance: coverage against loss as the result of a burglary. Found as part of the commercial package policy that has generally replaced the special multiperil ...
The term pro rata cancellation comes from the Latin term pro rata, which means in proportion or according to a certain rate. The term pro rata cancellation is used in the insurance business ...
Illness contracted as the result of employment-related exposures and conditions. Coverage for such diseases is found under workers compensation insurance. ...
Form of insurance whereby the buyer (reinsurer) assumes the entire obligation of the cedent company, effected through the transfer of the policies from the cedent to the books of the ...
Coverage when a director or officer of a company commits a negligent act or omission, or misstatement or misleading statement, and a successful libel suit is brought against the company as ...
Certificate of insurance required by law under the auspices of the Interstate Commerce Commission. The endorsement is attached to all inland marine policies issued to interstate motor ...
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