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.
Rate Capping Formula:
- Capped Premium = (Previous Term Premium * Capping Percentage) + Natural Changes + Manual Changes
- Total Premium = min(Capped Premium, Uncapped Premium)
Examples of natural changes/increases:
- 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
Examples of manual changes/increases:
- 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.
Support for Rate Capping is part of the existing Premium Group functionality, which is where you can indicate which line items should have their premium adjusted to account for the cap.
To enable Rate Capping:
- In the BriteCore menu, select Lines.
- On the Effective Dates screen, select the effective date with the rate increase.
- On the Policy Types screen, select the Components dropdown list, and then select Premium Groups.
- On the Premium Groups screen, select Add a New Premium Adjustment Group.
- In the Enforcement Type dropdown list, select Variable Premium Enforcement, and then complete one of the following steps:
- To cap a flat dollar amount, select Premium is an amount, and then, in the Amount box, type the dollar amount.
- To cap a percentage, select Premium is a percentage of the total Policy Premium, excluding certain Line Items, and then, in the Percentage box, type the percentage value.
Important: Capping percentage values require a 1 before the decimal. For instance, to cap at 20%, you must enter a value of 1.20.
- In the Lines Items to Include in the Premium Adjustment Group, navigate to and select the line items you want to include.