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
Single policy on the insured's property for: two or more different kinds of property in the same location; same kind of property in two or more locations; two or more different kinds of ...
Actual morbidity experience of an insured group as compared to the expected morbidity for that group. ...
Contractual agreement between two parties in which they agree to exchange a stream of interest payments on either a fixed rate for a floating rate or a floating rate for a fixed rate. The ...
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Intentional damage or destruction of another person or business's property. Insurance can be purchased by the owner of the property to protect against this exposure. ...
In many property insurance policies, a requirement that the insured carry insurance as a percentage of the total monetary value of the insured property. If this percentage is not carried, ...
Syndicate or association of insurance companies or reinsurance companies organized to underwrite a particular risk, usually with high limits of exposure. Each member shares in premiums, ...
Legislation that changed the tax treatment concerning child-care expenses so that an employee who has incurred child-care expenses greater than $4800 and who is participating in a ...
Contract that gives the insurance company the right, not the obligation, to buy a stipulated stock or bond at a specified price (strike price) at or before the date of expiration of the ...
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