Short Answer
Weighted revenue generally refers to a carrier methodology that considers a firm's revenue from more than one year rather than pricing the policy off a single year alone, assigning different significance to different periods. This can explain why the revenue figure underwriting uses doesn't exactly match your most recent actual revenue or your projection for the coming year. The exact methodology varies by carrier and isn't always disclosed to the broker or insured.
Why Carriers Use Weighted Revenue Instead of One Year
Architecture and engineering firms don't always grow in a straight line. A firm's revenue might look like $1.5 million one year, $3 million the next, then drop to $2 million, then climb to $2.5 million.
If pricing were based exclusively on the most recent year, premiums could swing sharply up and down as revenue moves year to year. A methodology that considers multiple years may produce a more stable exposure figure than simply using whatever the most recent annual revenue happens to be.
Why the Weighted Revenue Number Might Look Unfamiliar
If you're looking at your renewal and the revenue figure being used doesn't match last year's actual revenue, this year's revenue, or next year's projection, that's not necessarily an error. It may reflect how the carrier is weighting multiple years of reported revenue.
Different carriers approach this differently, and the specific formula isn't something a broker can always confirm or disclose, since it's part of the carrier's internal rating methodology.
Example
An engineering firm reports the following revenue over four years: $1.5 million, $3 million, $2 million, and $2.5 million.
At renewal, the firm expects the carrier to use the most recent $2.5 million figure. Instead, the exposure figure used for rating falls somewhere between the firm's recent years. Rather than assuming an error, the firm's broker can ask the underwriter what revenue figure was used and how it was derived.
What to Check When Your Weighted Revenue Looks Unexpected
If your renewal revenue figure looks unexpected, review:
- What revenue figure the carrier actually used for rating this year
- How that compares to your last two to three years of actual revenue
- Whether your firm’s projections on past applications were accurate
- Whether your broker can get the underwriter to explain the figure being used
- Whether the same pattern shows up across multiple renewal years
Related Questions
Does every carrier use Weighted Revenue?
No. Methodology varies by carrier, and not every program looks at multiple years of revenue the same way.
Can my broker tell me the exact weighting formula my carrier uses?
Not always. Some carriers don't disclose the specific methodology to the broker or the insured. What can typically be confirmed is the revenue figure being used, even if the underlying formula isn't shared.
If my revenue drops one year, does that lower my premium right away?
Not necessarily, and for the same reason an increase doesn't raise it dollar for dollar. A single year of lower revenue may be offset by how other years factor into the calculation.
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