Given the competitive nature of the insurance industry, premiums charged by insurance companies are important. Before examining specific rate-making methods in property and casualty insurance, the objectives of rate making are discussed.
Rate making, or insurance pricing, has several basic objectives. Because insurance rates, primarily property and casualty insurance rates, are regulated by the states, certain statutory and regulatory requirements must be met. Also, due to the overall goal of profitability, certain business objectives must be stressed. Thus, rate-making goals can be classified into two categories: regulatory objectives and business objectives.