Rate Capping allows a carrier to cap a renewal rate change at each renewal until reaching the approved rate level. Carriers can cap a rate change at a maximum percent increase (or decrease) or a set dollar amount. The amount at which the renewal will be capped is calculated as a percentage of the previous term premium, minus any natural increases, new coverages, or properties manually added to the policy on renewal.
With rate capping, carriers can present new business rates while gradually introducing significant rating plan changes to new customers, which leads to higher retention rates and lower complaint levels.
Note: Configuration Analysts can configure Rate Capping from within the existing Premium Adjustment Group functionality.
Functionality
Rate Capping Formula:- Capped Premium = (Previous Term Premium * Capping Percentage) + Natural Changes + Manual Changes
- Total Premium = min(Capped Premium, Uncapped Premium)
- Premium bearing changes made to the renewal term by the user, such as adding risks/coverages
- Number of Claims
- Age of dwelling
- Multi-Policy Discount
- Claims Free Discount
- Inflation Guard
- Adding a new risk/coverage
- Changing a category option
- Changing limit value
Note: New mandatory coverages automatically added on renewal aren’t considered a natural increase, so the coverages are considered for capping.For more information, please see the Rate Capping documentation.