How are rates determined for business property and casualty coverages?
The insurance company has to pay for the cost of the coverages provided to the insured businesses. The predictability of these costs will vary based on the type of coverage. Some losses are immediately apparent (e.g. fires) while others take years to become final (e.g. court judgments for liability coverages). Various expenses, such as getting customers and administrative costs of running the business must also be paid. Investment returns on premium dollars not yet spent add to the available funds to pay these expenses. Insurance companies judge all these and other factors including competitive forces, the legal environment, the investment returns likely to be earned for some years in the future. Then they set rates that make for a profitable operation, subject to regulation by the insurance departments. Some types of package coverages such as business owners policies are underwritten by class of policies rather than as individual companies. If your business fits in a certain classific
The insurance company has to pay for the cost of the coverages provided to the insured businesses. The predictability of these costs will vary based on the type of coverage. Some losses are immediately apparent (e.g. fires) while others take years to become final (e.g. court judgments for liability coverages). Various expenses, such as getting customers and administrative costs of running the business must also be paid. Investment returns on premium dollars not yet spent add to the available funds to pay these expenses. Insurance companies judge all these and other factors including competitive forces, the legal environment, the investment returns likely to be earned for some years in the future. Then they set rates that make for a profitable operation, subject to regulation by the insurance departments. Some types of package coverages such as business owner’s policies are underwritten by class of policies rather than as individual companies. If your business fits in a certain classifi
