A bureau rate is the set price for each unit of insurance as determined by a group of insurers — the bureau — that serves a particular geographical region. In the United States, the rating bureau is composed of all of the insurance companies that are allowed to write specific kinds of insurance within a state, including hazard and title insurance. The insurance companies for a state often merge their records of claims and losses to establish insurance rates that are statistically sound, based on industry-wide calculations. Not all regions, jurisdictions, or states have a bureau rate.
An insurance underwriter is employed by insurance companies to evaluate the risk of insuring an asset or person. He or she decides what to charge for the insurance premium, which is the amount that must be paid by the customer to maintain the insurance. One of the factors that are used to determine premium prices is the bureau rate.
Premium prices might be higher than the bureau rate because of the perceived risk of a client, which is the probability and magnitude of payout for insurance claims over the lifetime of the policy. Insurance companies might charge premiums that are lower than the bureau rate for low-risk clients by offering discounts. For example, an insurance company might offer a discount to a client who has had a policy with the company for a long period of time with no claims.
Along with the bureau rate, insurance underwriters will also consider insurance scores when calculating insurance premiums. The insurance score is an assessment of the risk level of a client in regard to the probability that the client will file a claim. The insurance score is also based on the client's credit score because, historically, people with lower credit scores file claims more frequently than those with high credit scores.
A bureau rate differs from the more commonly known national prime rate. The bureau rate determined by the insurance companies in the rating bureau is used to set insurance prices. A prime rate is set by a national government agency and is used to figure the interest rate for bank loans, credit cards, and home equity lines of credit. In the U.S., the prime rate is set by the Federal Reserve.