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
Independent, nonprofit, membership hospital plan. Benefits provided include coverage for hospitalization expenses subject to certain restrictions: for example, semiprivate room only. A ...
Coverage for a common carrier (the insured) for damage or destruction due to radioactive contamination from commercial radioisotopes of a property in the custody of the insured or that of a ...
State law by which insurance companies are permitted to establish deferred tax assets and liabilities subject to maximum limitations. ...
Coverage on an all risks basis for goods in transit, bailment, and while on the premises of others. ...
Fee paid to an insurance salesperson as a percentage of the premium generated by a sold insurance policy. ...
Subsidence is a term used in geology, engineering and surveying to denote the motion of a surface (usually, the earth\'s surface) downwards relative to a datum such as sea-level. In ...
Historical record of dividends paid. ...
Specific values of securities computed annually by the national association of insurance commissioners (NAIC) as guidelines and procedures for insurance companies in listing of their ...
Maximum amount that an insurance company will pay under a liability insurance policy for claims resulting from a particular accident. This maximum amount applies regardless of the amount of ...
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