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 in charge of an insurance company agency. The manager is an employee of the company and is usually compensated on a salary-and-bonus basis, the latter relating to premium volume ...
Coverage for robbery of the payroll of a business. Coverage applies to money and checks from the time the payroll is withdrawn from the bank until it is distributed to the employees, ...
Coinsurance requirement such that if a loss is less than $10,000 and also less than 5% of the total of insurance to cover a loss, then the insurance company will not require that the ...
Coverage provided for individuals or businesses for loss due to forgery or alteration of such financial instruments as notes, checks, drafts, and promissory notes. ...
Estate under the legal and administrative guidance of both the surety and the fiduciary. Any actions on the part of the estate requires the signatures of both in order to reduce the chances ...
Association comprised of 59 state and territorial emergency management directors having as its purpose the reduction of losses from natural disasters. The respective directors work directly ...
Buildup of policy cash value, as distinguished from the death benefit. A policyholder has a choice between surrendering the policy for its cash surrender value or keeping it in force for ...
Insurance company that employs or contracts with an insurance agent to represent it. ...
Attachment to a property insurance policy that automatically adjusts its coverage according to the construction cost index in a community. This endorsement is necessary in a property ...
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