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
In property insurance policy, clause that stipulates that if legislative acts or acts of the insurance commissioner's office expand the coverage of an insurance policy or endorsement forms ...
For loss of an obligee in the event that the principal fails to perform according to standards agreed upon between the obligee and the principal. ...
Common exclusion in life and accidental death insurance (double indemnity) policies, indicating that coverage does not apply unless an insured is a passenger on a regularly scheduled ...
(stop loss) amount over which a health insurance plan pays 100% of the costs in a percentage participation plan. Here, an insured shares costs with the insurer according to some ...
Same as term Accounts Receivable Insurance: coverage when business records are destroyed by an insured peril and the business cannot collect money owed. The policy covers these ...
Bonds sold at a discount from their face value; accumulated interest paid at maturity, as in the case of zero coupon bonds. Interest rate minimum is guaranteed with the prevailing interest ...
Market in which sellers dominate trading and force financial asset prices down. ...
Coverage in the event an insured's automobile is damaged, destroyed, or lost through fire, theft, vandalism, malicious mischief, collision, or windstorm. There are two kinds of property ...
Principle of equity in property, casualty, and health insurance. When two or more policies apply to the loss, each policy pays its part of the loss, unless its terms provide otherwise. For ...
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