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
New rule entitled "Employers Accounting for Postemployment Benefits," which requires advanced recognition of nonretirement benefits, health insurance continuation, and severance pay. ...
Means of setting life insurance reserves based on expected mortality rates as reflected in a mortality table. ...
Rules that insurance companies must follow in filing an annual financial statement known as the convention blank, with state insurance departments. The reported financial condition of an ...
Nominal interest rate minus the rate of inflation. ...
Additional amount of life insurance above that provided by the employee benefit plan (standard group life plan) that may be chosen by the employee. A limit is usually placed on this maximum ...
Same as term Convention Examination: audit of the convention blank (NAIC Statement Blank) every third year as to all of the financial activities of a company; company claim practices; and ...
Insurance purchased from an insurance company that has been licensed in the state in which the policy is purchased. This insurance is purchased through an agent or broker who are licensed ...
Term meaning that an exporter of goods that are damaged or destroyed during international shipment relinquishes responsibility for the damage or destruction once the goods leave the point ...
Type of term life insurance policy that has a face amount that increases to a predetermined sum and then decreases to zero at the termination point of the policy, while at the same time ...
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