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
Earnings by an insurance company from dividends on its equity portfolio, rent from real estate and other property it owns, and interest on its bond holdings. ...
Choice an employee can make of receiving higher private pension benefits prior to eligibility for Social Security, and lower pension benefits thereafter. For example, employees taking early ...
Ocean marine insurance covering one trip. Ocean marine insurance is written either for a specific time period or per trip. A voyage policy is usually written for cargo, whereas a time ...
Person who enters property without the right to do so. For liability purposes, it has been held that property owners are not responsible for trespassers as long as they do not intentionally ...
Time frame during which an annuitant makes premium payments to an insurance company. The obligations of the company to the annuitant during this period depend on whether a pure annuity or ...
Type of excess of loss reinsurance in which the insurance company (cedent) is guaranteed reinsurance for future covered losses once they exceed a specified amount on either a per loss, per ...
Classification at death of all pension plans, profit-sharing plans, individual retirement accounts (IRAS), annuities, and installment payments to the extent to which the deceased was ...
Return of a percentage of premium paid by a business firm if its loss record is better than the amount loaded into the basic premium. ...
Sums payable to the winning plaintiff by the losing defendant in a court of law; can take any or all of these forms: general, punitive, and special. ...
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