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
Arbitrator who settles disputes over the amount of loss when an insurer and an insured do not agree. ...
Means of financing by which some large organizations pay their property or liability insurance premiums to reflect losses actually paid during the first year of coverage, plus claims ...
Addition to a business property insurance policy to cover loss of earnings, subject to a monthly limit, in the event that property of an insured is destroyed and a business cannot continue. ...
Covers property damage and theft coverage in two areas not subject to a coinsurance requirement or a deductible. Coverage A. If the bank becomes liable for loss to a customer's property ...
Association of stock property insurance companies, formed to provide engineering services for member companies. These companies generally insure highly protected risks (risks characterized ...
Same as term: Free Examination "free Look" Period: right, in most states, of an insured to have 10 days in which to examine an insurance policy, and if not satisfied, to return it to the ...
Error, misstatement, or breach of duty by an officer or director of a company that results in a lawsuit against the company. directors and officers liability insurance covers claims arising ...
In life insurance, single payment instead of a series of installments. ...
Personal property insurance that provides all-risks coverage for wedding presents, wherever they may be in the world, until they are permanently located. Because the new owners of wedding ...
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