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
Fee that is most consistent with that of physicians, hospitals, or other health providers for a given procedure; usual fee for a procedure charged by the majority of physicians with similar ...
Mortality table, morbidity table that does not include current statistical experience. ...
Insurance coverage that protects a contractor or other type of business providing a service for expenses incurred in the event a contract is not ratified by a foreign government. For ...
Obligatory reinsurance contract in which a reinsurer agrees to pay for all or a large portion of losses up to a limit, when these losses exceed the retention level of the cedent. The ...
Combination of an interest rate cap and an interest rate floor, creating a band within which interest rates can range. For example, if an interest rate band is between 6% and 10%, the ...
Endorsement to an automobile insurance policy that protects an insured in either or both of two circumstances when driving a non owned car: business endorsement if the insured's negligent ...
Form of coverage in which an insurer automatically reinsures individual risks with its reinsurer. The insurer must transfer (cede) the risks to its reinsurer and its reinsurer must accept ...
Life insurance policy under which all premiums have already been paid, with no further premium payment due. ...
The open perils policy is the counterpart to the named perils policy. In it, any peril NOT mentioned is covered by the policy. Here's an example: let's say you got an open perils policy ...
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