Property and casualty insurance refers to types of coverage that protect the things you own (like your home, car, and other belongings, or even your pets).

These insurances also include liability coverage.

This helps protect you if youâ€™re found legally responsible for an accident that causes injuries to another person or damages to their property.

Each insurance company uses a unique formula to determine risk and set premiums, resulting in varying quotes.

Most formulas are variations of the pure premium method, which ensures coverage for losses and profit.

Below is the procedure of determining the property and casualty rate insurance;

#### Step 1

Estimate your pure premium. A pure premium rate is an estimate of the amount an insurance company needs to collect to offset any potential claim on your policy.

To estimate this, take your potential loss and divide by the insurance’s exposure unit.

For example, if you value your home at $500,000 and the exposure unit is $10,000, then you would calculate your pure premium as $50 ($500,000 / $10,000).

#### Step 2

Determine the fixed expenses per exposure unit.

An exposure unit is an incremental unit of measure that correlates the premium charged to the amount of any legal fees or taxes that result from the claim.

A couple of examples of an exposure unit include per $1,000 of property value or per $1 per square foot area of property.

This is estimated based upon prior, similar claims.

If a home similar to yours in size and location home has had $300,000 worth of expenses due to a claim, then you could estimate that your fixed expense per exposure unit is $300,000 / $10,000 or $30.

Your policy should list the amount of your exposure unit. If you cannot find the exposure unit on your policy, call your insurance agent to determine the amount.

#### Step 3

Estimate the variable expense factor.

The policy’s expenses associated with the sum of all factors.

Some examples of these expenses include sales commissions, taxes and marketing expenses.

A standard variable expense factor estimate is 15 percent.

#### Step 4

Estimate the profit and contingency factor.

This is the factor that insurance companies use to hopefully ensure profits and protect themselves against any fraudulent claims.

Insurance companies typically use a range between 3 to 5 percent for a profit and contingency factor.

#### Step 5

Assign each of the numbers a variable.

P = pure premium.

F = fixed expenses per exposure unit.

V = variable expense factor.

C = contingency and profit factor.

#### Step 6

Place your numbers into the following equation:

Your rate = (P+F)/1-V-C.

If you continue the example and assign 4 percent as the profit and contingency factor, the equation would be ($50 + $30) / 1 – 0.15 – 0.04) or $80 / 0.81.

Your rate would be $98.77.

Multiply this number by 12 to find your annual rate, which would be $1,185.24 in this example.

*Below is a video clip on how property and casualty insurance rate is calculated;*