How do Carriers Build Service Contract Prices and Rates

To create a rate for a wholesale cost of a service contract or limited warranty, you need to determine four (4) values:
  • Frequency. The Frequency is the percent of the covered items that are expected to have a claim.
  • Severity. The Severity refers to the cost to repair or replace the covered product.
  • Target Loss Ratio (TLR). The Target Loss Ratio (TLR) refers to the expected utilization of the funds set aside for future claim payments.
  • Provider's Fee. This is calculated as a percent of the required claim reserve and should include premium tax.

By entering selected pieces of information, you can develop a rate using a model similar to how carriers and providers develop rates. is a property of Personal Safeguards Group, LLC. Contact Us with any Questions.