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
Transfer of high severity risks through the insurance contract to protect against catastrophic occurrences. While insurance is generally not the most cost-effective means of recovery of ...
Reduction of private pension benefits to avoid "duplication" of Social Security benefits, according to a formula. Many pension plans "offset," or reduce, monthly pension benefits by a ...
Reinsurance of & re insurer such that the re insurer protects itself from a catastrophe occurrence. Just as an insurer must decide to cede to the re insurer a portion of a risk it has ...
Net income expressed as a percentage of average total equity. This percentage measures profitability by expressing how efficiently invested capital or equity is being utilized. ...
Excess funds above the amount required to establish legal reserves for the policies in force. These excess funds are generated as the result of mortality savings, excess interest earned on ...
Same as term Cancellation Provision Clause: provision permitting an insured or an insurance company to cancel a property and casualty or a health insurance policy (circumstances vary; see ...
Marine cargo coverage for a single shipment of goods. Also known as special risk insurance and trip cargo insurance. Contrasts with open policy cargo insurance that covers all of a ...
Day-to-day care that a patient (generally older than 65) receives in a nursing facility or in his or her residence following an illness or injury, or in old age, such that the patient can ...
Statutory liabilities minus the interest MAINTENANCE RESERVE minus the ASSET VALUATION RESERVE. ...
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