What is the difference between a rate increase and a claims-made step increase?
A rate increase is an increase in the base premium needed to offset increases in the frequency or severity of loss trends. (Similarly, decreases in the frequency or severity of loss trends may result in rate decreases.) Its objective is to maintain rate stability over the long term and to implement increases only when necessary. Claims-made step increases, as explained earlier, are increases in premium due to the accumulation of exposures to loss over a given time period and are a natural progression of the claims-made policy. Step increases are based on the normal reporting patterns of claims and occur regardless of the severity or frequency of claims. It is possible that you may experience a rate increase or decrease in the same year that you experience a step increase.
