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
Individual who represents a ceding insurance company in placing its business with a re insurer. ...
Factors on the application that must be evaluated in order to complete the underwriting process: age; sex; physical condition; personal health history; family health history; financial ...
Approach to derive trend lines that can be applied to rating insured losses. Other methods require substantial preliminary operations to solve systems of equations of several unknowns. The ...
Insurance purchased from an insurance company that has been licensed in the state in which the policy is purchased. This insurance is purchased through an agent or broker who are licensed ...
Policy provision that provides coverage for continuing payroll expense of all employees of an insured business (except for officers and executives) for the first specified number of days of ...
Ruling that is the most significant source for the valuation of closely held corporation capital stock critical to the close corporation plan. This ruling defines the fair market value as ...
Type of mortality table that is based on combined statistics from both the ultimate mortality table and the aggregate mortality table. It shows total statistics for the probability of ...
Circumstance under which there is a significant deviation of the actual aggregate losses from the expected aggregate losses. For example, a hurricane is a hazard that is catastrophic in ...
Standards used to determine claims payments in cases of overlapping property/liability insurance coverage. At one time, each type of insurance had its own rules to govern claims where more ...
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