Ratemaking for Fire Insurance

The fire insurance business is reasonably well implemented to perform the task of ratemaking and has in fact made rates according to a normally good formula. While there is not a complete and formal set of adopted standards, substantial progress has been made in that direction. The materials and plans in current use will be discussed here. The Standard Profit Formula, originally adopted in 1921 and revised in 1949, forms the cornerstone for the measurement of the adequacy of fire insurance rate levels. The Standard Classification of Occupancy Hazards, as originally adopted in 1914 and last basically amended in 1946 as to classes and 1949 as to policy term and outstanding losses, is a competent plan for recording classified premium and loss experience by states. The Statistical Plan for Expenses which was put into effect in 1951 provides for the reporting of expenses by classification of expense and where possible by state.