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
Voluntary market conduct compliance organization whose purpose is to protect the public interest and to enhance the insurance buyer's perception of the life insurance instrument. The member ...
Liability policy that covers all liability exposures for a large group that has something in common. For example, wrap-up insurance can be written for all the various businesses working ...
Single contract coverage on a group basis issued to an employer. Group members receive certificates as evidence of membership summarizing benefits provided. ...
Method of funding a pension plan through: an individual level cost basis, where future benefits for the employee are estimated and contributions are made periodically while the employee is ...
Coverage for the federal government in the event of loss due to dishonest acts of federal government employees. ...
Coverage in health insurance by two or more policies for the same insured loss. In such a circumstance, each policy pays its proportionate share of the loss, or one policy becomes primary ...
Independent, nonprofit, membership medical-surgical plan. Benefits cover expenses associated with medical and surgical procedures. The physician and/or surgeon bills the Blue Shield plan ...
Additional amount of accidental death and dismemberment insurance not provided by the employee benefit plan (standard group life plan) that may be chosen by the employee. Generally, the ...
Proportion of losses incurred to premiums earned. This ratio indicates the amount of a premium dollar that is being consumed by losses. ...
Have a question or comment?
We're here to help.