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
Requirement of state approval of property insurance rates and policy forms before they can be used. Individual states regulate insurers and approve their rates. There are three methods of ...
Payment to the seller over the seller's life expectancy for the sale of the seller's assets. This procedure provides for the immediate removal of assets that have appreciated from the ...
Protects a cedent against an aggregate amount of claims over a period, in excess of a specified percentage of the earned premium income. Stop loss reinsurance does not cover individual ...
Insurance coverage sold by a broker as contrasted with insurance coverage sold by an agent. ...
One named under provisions of the employee retirement income security act of 1974 (erisa) for a terminated pension plan with an unfunded liability for its benefits. ...
Circumstance which increases the probability of loss because of an applicant's personal habits or morals; for example, if an applicant is a known criminal. ...
Option under a participating life insurance policy by which the policy owner can elect to have the dividends purchase paid-up increments of permanent insurance. ...
Small business retirement plans created by the Small Business Job Protection Act of 1996. These plans permit small business owners who have fewer than 100 employees to establish an employee ...
a contract in life insurance that includes elements of whole life and term insurance. in pensions, a combined life insurance policy and a side (auxiliary) fund to enhance the amount of a ...
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