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
Pricing of the insurance product below the necessary premium rate to reflect the costs of expected losses. The thesis of this pricing strategy is to obtain large sums of money to invest and ...
Method of funding a pension plan after a worker retires. An employer purchases an annuity or sets aside a sum when an employee retires that will pay monthly lifetime benefits. ...
State operated insurance company used in workers compensation insurance in some states where the risks are so great that the commercial insurance companies cannot operate at affordable ...
Transfer of rights under an insurance policy to another person or business. For example, to secure a debt, it is not uncommon for the policyowner to transfer to the creditor his rights to ...
Investment strategy that advocates the transfer of amounts from one category of investment to another category according to a perception of how each of these categories of investments will ...
Placement of verbal descriptive information into numerical form for the purposes of analysis. ...
Percentage of life insurance or other insurance policies remaining in force; percentage of policies that have not lapsed. The higher the percentage, the greater the persistency. Since it is ...
Evidence of a temporary contract obliging a life or health insurance company to provide coverage as long as a premium accompanies an acceptable application. This gives the company time to ...
Coverage that can be converted into permanent insurance regardless of an insured's physical condition and without a medical examination. The individual cannot be denied coverage or charged ...
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