Question

Which of the following statements is NOT accurate statement about how insurance premiums (rates) are determined in the US?

A. rates reflect risk and the investment income that insurers expect

b. rules for how rates are determined are made at the state level

c. state regulators want to be sure premiums are not unfairly discriminated

d. rates reflect distribution and overhead costs

e. the federal gov wants to be sure rare are adequate

Answer 1

d. rates reflect distribution and overhead costs

Insurance premium calculations are subject to various factors but are not related directly with distribution and overhead costs. These costs are administrative expenses of the Company that could be revered by the returns that the Insurance Company receives by investing the collected premiums in the markets. But these costs do not form part of the premium calculation and the policy holder is not expected to pay for such costs.