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
Entity that offers a managed care plan for workers compensation benefits that joins a provider network with the following parts: case management personnel, medical bill review personnel, ...
In insurance, legal authority obtained by an insurance company, agent, broker, or consultant that permits them to do business in a particular state. The document issued by the state shows ...
Clause in legal contracts that excuses a given party to the contract from liability for unintentional negligent acts and/or omissions. ...
Individual who possesses a unique ability essential to the continued success of a business firm. For example, this individual might have the technical knowledge necessary for research and ...
owner of property has an insurable interest because of the expectation of monetary loss if that property is damaged or destroyed. creditor of an insured has an insurable interest in ...
Frequency and severity of accidents resulting from conditions and environment surrounding one's workplace. Occupation is an important underwriting factor when considering an applicant for ...
Probable number of times that a specified event is likely to occur. For example, if E is the event, then the odds for E occurring are X to Y according to the following relationship: P (E) ...
Model state law of the NAIC that stipulates that the prospective purchaser of a dread disease insurance policy (catastrophic illness insurance policy) must be provided a quantitative ...
Health and medical insurance that excludes coverage for job-related injuries and illnesses. Most medical insurance policies do not provide benefits for job-related claims, which are covered ...
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