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
Special insurance that covers warehousers liability to customers whose property is damaged by an insured peril while in the custody of an insured warehouser. Policy deductibles may range ...
Same as term Cost-Of-Living Adjustment: automatic adjustment applied to Social Security retirement payments when the consumer price index increases at a rate of at least 3%, the first ...
Excess coverage for employers who use self insurance for routine workers compensation risks. Many employers consider workers compensation exposure to be routine and predictable and set up a ...
Agents, managers, and office personnel serving in the branches of an insurance company. ...
Costs associated with the selling of a new insurance policy to a policyholder. The costs include the acquisition commission as a percentage of the first year's premium, underwriting ...
Individual action or failure to act as a reasonably prudent person would under similar circumstances, resulting in harm to another. Also called negligence. A reasonably prudent person is ...
Dividends paid historically, currently, and projected. ...
Amount added to the basic premium (expectation of loss) to cover an insurance company's expenses. These expenses include agent commissions, premium taxes, costs of putting a policy on the ...
New pension-accounting rule (Employers Accounting for Post retirement Benefits Other Than Pensions) which mandates that employers that provide post retirement benefits to include life ...
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