A filed rate must be adequate, not excessive and not unfairly discriminatory. The rate itself is built from the expected loss cost plus:
Explanation
A rate is the price of one unit of exposure: expected losses, plus a loading for expenses such as commissions, taxes and overhead, plus profit and contingencies. Premium is then the rate times the number of exposure units. Adequacy guards solvency, the excessive test guards buyers, and unfair discrimination means charging different prices to insureds with the same expected loss. Deductibles and limits shape one policy, not the rate structure.
This topic, taught in full in the Personal Lines Insurance Producer guide. Personal Lines Insurance Producer — Complete Study Guide (2026) — PDF + EPUB, $19.99 · 14-day refund →
Practice all 474 questions free — no signup required.
Own the complete Personal Lines Insurance Producer guide — PDF + EPUB, $19.99 →
Related questions on this topic
- A primary insurer must cede, and the reinsurer must accept, every risk falling in a defined class. This arrangement is:
- Under the McCarran-Ferguson Act, regulation of the business of insurance is:
- Producers who are salaried or commissioned employees of one insurer, and who do not own the renewal rights to their accounts, belong to the:
- A producer offers to pay a client's first month of premium out of her own commission if the client signs today. This practice is:
- An insurer earns $10,000,000 of premium in a year and incurs $7,500,000 of losses on that business. Its loss ratio is:
- A producer promises to add a water back-up endorsement, forgets to order it, and the client later suffers an uncovered basement loss. The producer's exposure is met by:
Last reviewed: · editorial process