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
Crime against the state for which an officer of the state can bring legal action. Society is harmed by an individual breaking the laws of the state. Usually there is no statue of ...
Clause, generally found in business interruption insurance, that establishes the same indemnification basis as the coinsurance clause. ...
Detailed descriptive list made available to the survivor (s) of the insured showing: attorney, accountant, insurance agent, and location of important documents such as wills, power of ...
Provision in almost all excess of loss reinsurance contracts under which payment is made by a re insurer of each and every loss incurred by the cedent in excess of a specified sum, up to a ...
Standard Commercial Property Floater form covering death or damage to livestock as the result of insured perils such as fire, lightning, explosion, smoke, wind, hail, aircraft, earth quake, ...
basic feature of the social security act under which benefits paid are associated with the employee's earnings that have been taxed during the employment period. ...
Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old living room sofa will not be replaced at ...
Endorsement to the commercial general liability insurance (CGL) policy that provides liability coverage to an insured business for damages anywhere in the world. Policies typically have ...
Account established and administered by a state agency to finance a mandatory insurance program, for example, workers compensation insurance. ...
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