What are rate-scalable and basis-scalable costs?

A rating engine generates cost information that must include coverage-related charges, discounts, taxes, and fees. Certain operations work slightly differently when dealing with costs that are rate-scalable versus basis-scalable costs.

• Most insurable objects are rate-scalable. For rate-scalable objects, the rating looks up the rate based on a variety of factors such as the type of vehicle, the coverage terms chosen, the date and state. Often this calculation uses data from a table. Rating modifies that rate based on a variety of other factors (such as vehicle cost or driver age) to make a final adjusted rate. That final adjusted rate is generally the cost for the entire rated term. The final cost is that amount prorated over the portion of the policy for which the cost is appropriate.

• Other insurable objects are basis-scalable. A basis-scalable object means that the ratable basis for the object already considers time in some way. For example, it might capture the total payroll between two dates. Those costs are rated with a calculated adjusted rate multiplied by the basis in question, just like rate-scalable costs. However, PolicyCenter must not prorate basis-scalable costs based on time. This is because the basis amount already takes that time component into consideration. Notable basis-scalable objects include workers’ compensation exposures and some general liability exposures.

Each cost data subclass indicates whether to merge that cost data subclass as rate-scalable or basis-scalable.