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
Legislation mandating that factors taken into account in the calculation of premium rates for automobile insurance include the insured's driving record, annual miles driven, and years of ...
Type of livestock insurance that covers for cattle and sheep on the range from October 1 to May 1 in the Western states. Perils insured against are the weather, including freezing; most ...
Performance of managerial and clerical functions related to an employee benefit insurance plan by an individual or committee that is not an original party to the benefit plan. In selecting ...
Synopsis of the key financial figures concerning the pension plan that is contained in the form 5500 that must be filed annually with the Internal Revenue Service. This report must be given ...
Protection against the death of an individual in the form of payment to a beneficiary usually a family member, business, or institution. In exchange for a series of premium payments or a ...
Bonds issued by the United States Treasury that earn a fixed interest rate plus the rate of inflation. These bonds are sold at face value in denominations of $50 up to $5000 and may earn ...
One of four SEC divisions that administers the procedure through which public companies must disclose all relevant material in order that a potential investor might make an informed ...
Accounting procedures that defer the full funding of a life insurance net level premium reserve to accommodate the policy acquisition cost in the early years of a policy. First-year policy ...
Modification in premiums, reserves, and other values to reflect actual loss experience and expenses and expected benefits to be paid. ...
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