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Commercial UW AU60
Commercial Underwriting Principles Assgnt 7 of 8
| Term | Definition |
|---|---|
| Pricing | The process of setting a price for a product or service and establishing the terms and conditions for the insurance agreement. |
| Exposure unit | A fundamental measure of the loss exposure assumed by an insurer. |
| Premium base | The unit in which the exposure is measured, such as gross sales or payroll. |
| Homogeneous | Units of exposure that face approximately the same expected frequency and severity of loss. |
| Independence | A situation in which the occurrence of one event has no effect on the likelihood of the occurrence of any other event. |
| Amount subject | The total value exposed to loss at any one location from any one event. |
| Reinsurance--- | Transfer of insurance risk from 1 insurer to another thru contractual agreemt which 1 insurer (reinsurer) agrees, in return for a RI prem, to indemnify another insurer (primary insurer) for some or all of financial consequences of certain loss exposures c |
| Loss costs | The portion of the rate that covers projected claim payments and loss adjusting expenses. |
| Availability | A social goal of insurance that states that insurance is accessible to those who want or need it. |
| Affordability | A social goal of ins. - a ceiling placed on rates keeps coverage available to purchase, rates are determined so that they transfer a portion of the costs of coverage from high-risk insureds to the remaining insureds, or subsidized from outside the ins.... |
| Simplicity | A social goal of insurance stating that a rate must be reasonably simple to develop and modify. |
| Stability | A social goal of insurance stating that rates should remain firm and change only when underlying costs have changed substantially. |
| Credibility factor | The factor applied in ratemaking to adjust for the predictive value of loss data and used to minimize the variations in the rates that result from purely chance variations in losses. |
| Rate | The price per exposure unit for insurance coverage. |
| Premium | The price of the insurance coverage provided for a specified period. |
| Ratemaking | The process insurers use to calculate insurance rates, which are a premium component. |
| Pure premium | The average amount of money an insurer must charge per exposure unit in order to be able to cover the total anticipated losses for that line of business. |
| Expense provision | The amount that is included in an insurance rate to cover the insurer's expenses and that might include loss adjustment expenses but that excludes investment expenses. |
| Underwriting expenses | Costs incurred by an insurer for operations, taxes, fees, and the acquisition of new policies. |
| Loss adjustment expense (LAE) | The expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy. |
| Allocated loss adjustment expenses (ALAE) | The expenses an insurer incurs to investigate, defend, and settle claims that are associated with a specific claim. |
| Unallocated loss adjustment expenses (ULAE) | Loss adjustment expenses that cannot be readily associated with a specific claim. |
| Underwriting profit | Income an insurer earns from premiums paid by policyholders minus incurred losses and underwriting expenses. |
| Ultimate loss | The final paid amount for all losses in an accident year. |
| Experience period | The period for which all pertinent statistics are collected and analyzed in the ratemaking process. |
| Investment income | Interest, dividends, and net capital gains received by an insurer from the insurer's financial assets, minus its investment expenses. |
| Pure premium method | A method for calculating insurance rates using estimates of future losses and expenses, including a profit and contingencies factor. |
| Loss ratio method | A method for determining insurance rates based on a comparison of actual and expected loss ratios. |
| Judgment ratemaking method | A method for determining insurance rates that relies heavily on the experience and knowledge of an actuary or an underwriter who makes little or no use of loss experience data. |
| Basic limit | The minimum amount of coverage for which a policy can be written; usually found in liability lines. |
| Catastrophe model | A type of computer program that estimates losses from future potential catastrophic events. |
| Credibility | The level of confidence an actuary has in projected losses; increases as the number of exposure units increases. |
| Increased limit factor | A factor applied to the rates for basic limits to arrive at an appropriate rate for higher limits. |
| Risk charge | An amount over and above the expected loss component of the premium to compensate the insurer for taking the risk that losses may be higher than expected. |
| Rate manual | A resource for classifying accounts and developing premiums for given types of insurance; includes necessary rules, factors, and guidelines to apply those rates. |
| Class rate | A type of insurance rate that applies to all insureds in the same rating category or rating class. |
| Specific fire rate | An insurance rate that is developed by ISO field representatives through a physical visit to a property and development of an individual advisory loss cost. |
| Judgment rate | A type of individual rate that is used to develop a premium for a unique exposure for which there is no established rate. |
| Experience modification factor | A factor that tailors manual rates to an insured's experience based on the insured's payroll and loss record of certain prior years. |
| Retrospective rating plan | A rating plan that adjusts the insured's premium for the current policy period based on the insured's loss experience during the current period; paid losses or incurred losses may be used to determine loss experience. |
| Paid loss retrospective rating plan | A retrospective rating plan in which the insured pays a deposit prem at the beginning of the policy period & makes addtl paymts; monthly, to reimburse insurer for insured's losses as they are pd & in which the ttl amt pd is subject to the min & max prem. |
| Schedule rating plan | A rating plan that awards debits and credits based on specific categories, such as the care and condition of the premises or the training and selection of employees, to modify the final premium to reflect factors that the class rate does not include. |
| Individual risk premium modification plan (IRPM) | A rating plan that allows underwriters to modify property premiums based upon specific risk characteristics not reflected in the class rate. |
| Expense modification | An insurance rating plan that modifies the expense portion of an insured's rate to reflect the actual cost of providing coverage to that insured. |
| Rebating | The practice of giving a portion of the producer's commission or some other financial advantage to an individual as an inducement to purchase the policy. |
| Large deductible plan | A rating plan whereby the insured assumes a substantial per accident or per occurrence deductible, generally ranging from $100,000 up to $1 million. |
| Composite rating | An optional insurance pricing approach that uses a premium base other than the one specified in the rating manual to price an entire account. |
| Specific insurance | Insurance that covers each building for a specific limit of insurance and personal property at each building for a specific limit of insurance. |
| Blanket insurance | Insurance that covers either of the following with one limit of insurance: (1) one type of property in one or more separately rated buildings or (2) two or more types of property in one or more separately rated buildings. |
| Blanket limit | The maximum dollar amount the insurer will pay for two or more items or classes of property at one or more locations. |
| Blanket highest rate | A rate that can be used for blanket coverage at multiple locations that uses the highest rate applicable to any one location. |
| Blanket average rate | A rate that can be used for blanket coverage at multiple locations instead of using the highest rate applicable to any one location. |
Created by:
lorrainel007