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InsuranceInsurance GlossaryPart 4 of 13

Rating and Underwriting Glossary

27 terms from the Insurance book's Rating and Underwriting part, each defined in a line and linked to the chapter that explains it.

3 min readUpdated
  • Adverse action (insurance): under the FCRA, a denial or cancellation of, an increase in any charge for, or an unfavorable change in insurance in connection with underwriting; an initial rate can be one (Consumer Reports & Third-Party Data).
  • Base rate: the price per coverage and territory of the reference risk, before relativities (How a Rate Is Built).
  • C.L.U.E.: LexisNexis's contributory auto and property claims history exchange, a consumer report (Consumer Reports & Third-Party Data).
  • Credit-based insurance score: a score built from credit report data to predict insurance losses rather than repayment, banned or restricted in some states and lines (What You May Rate On).
  • Deductible factor: the relativity applied to a base rate for a chosen deductible (How a Rate Is Built).
  • Extraordinary life circumstances: events (catastrophe, serious illness, death in the family, divorce, identity theft, job loss, deployment) for which the NCOIL credit model requires reasonable exceptions to credit-based rating (Consumer Reports & Third-Party Data).
  • Increased limits factor: the relativity applied to a base rate for limits above the base limit (How a Rate Is Built).
  • Inspection report (underwriting): a property inspection used to accept or cancel a risk within the state's underwriting period (Underwriting Rules, Referrals & Models).
  • Loss cost multiplier (LCM): the factor an insurer files to turn an advisory organization's loss costs into its rates, built from its expense and profit provisions and, where allowed, its own loss experience (How a Rate Is Built).
  • Loss cost (prospective loss cost): an advisory organization's filed expected loss and LAE per exposure unit, without expenses or profit (How a Rate Is Built).
  • Motor vehicle record (MVR): a state's record of a driver's license status, violations and convictions, released to insurers under the DPPA (Consumer Reports & Third-Party Data).
  • Neutral score rate: the rate an applicant would have received without the credit score, the baseline for adverse action after Safeco v. Burr (Consumer Reports & Third-Party Data).
  • Pay-per-mile: auto insurance priced as a base premium plus a filed rate per measured mile (Telematics & Usage-Based Insurance).
  • Permissible loss ratio: 100% minus the expense and profit provisions, whose reciprocal is the expense multiplier (How a Rate Is Built).
  • Prefill: populating a quote or application with drivers, vehicles or property attributes from a data vendor (Consumer Reports & Third-Party Data).
  • Price optimization: varying rates on factors other than risk of loss, such as willingness to pay, barred by bulletin in thirteen jurisdictions (What You May Rate On).
  • Rating algorithm: the filed order of lookups, multiplications, additions, minimums and rounding that turns rate tables into a premium (How a Rate Is Built).
  • Rating worksheet: every input, table version, factor and intermediate result of a rating, stored with the quote or transaction (How a Rate Is Built).
  • Referral: an underwriting issue that blocks a quote, bind or issue until someone with enough authority approves it (Underwriting Rules, Referrals & Models).
  • Relativity: a multiplicative rating factor for a characteristic that differs from the reference risk (How a Rate Is Built).
  • Safe Driver Insurance Plan (SDIP): North Carolina's driving record surcharge plan, assigning points to convictions and at-fault accidents with a percentage rate increase per point level (How a Rate Is Built).
  • Telematics: measuring driving behavior or mileage from a phone, plug-in device or connected car for rating (Telematics & Usage-Based Insurance).
  • Territory: a geographic rating cell to which a garaging or property location is assigned by the filed rule (How a Rate Is Built).
  • Underwriting guidelines: an insurer's written rules for which risks it accepts and on what terms, filed with the regulator in some states (Underwriting Rules, Referrals & Models).
  • Underwriting period: the first days of a policy (often 60) in which state law lets an insurer cancel more freely, for instance after an inspection (Underwriting Rules, Referrals & Models).
  • Unfair discrimination: rating or underwriting distinctions not justified by expected loss or barred by law; with excessive and inadequate, one of the three rate standards (What You May Rate On).
  • Usage-based insurance (UBI): auto insurance priced in part on measured driving or mileage (Telematics & Usage-Based Insurance).