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
Coverage for the percentage of the health care costs paid by the health insurance company, which is usually 80% above the insured's deductible up to a dollar amount of approximately $5000. ...
Amendment that modifies the federal flood insurance program by providing relocation and acquisition coverage for structures in imminent danger from an encroaching shoreline. This amendment ...
Form of state rating law that requires prior approval of property and casualty insurance premiums by the state insurance department for certain changes. Here, a state generally allows new ...
Extra life insurance benefit found in the family income policy, family income rider, family MAINTENANCE POLICY, and FAMILY POLICY payable to the BENEFICIARY should the insured die within a ...
Form that covers exposures associated with efforts to operate a business that is damaged by a peril such as fire. For example, a special electrical generator may have to be purchased in the ...
Date of issue of the policy. ...
Law that provided for federal crime insurance. Because private insurance is not available for business owners and residents of certain high-crime areas, the act provides that the federal ...
Accident policy that covers a traveler for a single trip on an airplane or other common carrier. The name comes from its origin as part of the ticket or ticket stub, but these policies are ...
Important 1944 U.S. Supreme Court ruling that the insurance business constituted interstate commerce and was thus subject to the SHERMAN antitrust act. This decision came in U.S. v. ...
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