Rating algorithm

A rating algorithm is the filed sequence of calculations that turns an insurance base rate and rating factors into a premium. It specifies the order of the calculations, whether factors multiply or add, any minimum or maximum premium, and how the result is rounded.

Example

Suppose, for illustration, a $100 base rate is multiplied by a 1.2 risk factor, reduced by a 10% discount, and then has a $5 fee added. The result is $113, above the illustrative $100 minimum, so rounding to the nearest dollar leaves a $113 premium.

In Decisimo’s article on insurance rating engines, a demo home premium is worked step by step, and changing the order takes the same policy from 250 to 214, below its 250 minimum.