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
Same as term Floater: coverage for property which moves from location to location either on a scheduled or unscheduled basis. If the floater covers scheduled property, coverage is listed ...
Feature of pension plans whereby an employee whose service has been interrupted can have that period credited toward retirement. ...
Company formed to insure the risks of its parent corporation. Reasons for forming a captive insurance company include: Instances when insurance cannot be purchased from commercial insurance ...
Waiver of an impairment of an applicant for health insurance by attaching an endorsement to the health insurance policy stating that the policy will pay no benefits in connection with the ...
Type of guaranteed insurance contract in which the term is fixed, the rate is fixed, and the contract owner does not participate in the insurance company's earnings. ...
Joint profit sharing and money purchase plan that is appropriate for businesses that desire the funding flexibility of the profit sharing plan and the higher tax-deductible (25% vs. 15%) ...
Decision by a court of law. ...
actual fire losses divided by the total value of the property exposed to the peril of fire; actual losses resulting from fire divided by the total fire amount of in-force business. ...
Period of time of insurance coverage. If a loss occurs during this time, insurance benefits are paid. If a loss occurs after this time period has expired, no insurance benefits are paid. ...
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