What is difference between pro rata and short rate cancellation

In a purely pro rata cancellation, insurance companies would refund roughly 50% of their original investment. However, with a short-rate cancellation, the company would be able to charge them additional fees for breach of contract.

What does short-rate cancellation mean?

Short-Rate Cancellation — a type of insurance policy cancellation that serves as a disincentive for the named insured to cancel the policy before its normal expiration date. The only time short-rate cancellation would occur would be when the insured initiates the cancellation prior to the expiration date.

What is the short-rate cancellation penalty?

The CA Short Rate penalty is a percent of the full term premium based on the number of days of coverage in the canceled policy. To calculate the CA premium penalty, ICW Group uses the standard NCCI Short Rate Cancellation table for a one-year policy.

What is the pro rata method in insurance?

In the insurance industry, pro rata means that claims are only paid out in proportion to the insurance interest in the asset; this is also known as the first condition of average.