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📊 '''Increased limits factor (ILF)''' is a multiplicative rating factor used in [[Definition:Commercial insurance | commercial]] [[Definition:Liability insurance | liability insurance]] to adjust the [[Definition:Base rate | base-rate]] [[Definition:Premium | premium]] — which corresponds to a standard, or "basic," policy limit — upward when a [[Definition:Policyholder | policyholder]] purchases higher [[Definition:Policy limit | limits of liability]]. In practice, if the basic limit for a [[Definition:Commercial general liability (CGL) | commercial general liability]] policy is $100,000 per occurrence, the ILF tells the [[Definition:Underwriting | underwriter]] how much additional premium to charge when the insured opts for $500,000 or $1 million instead. The factor is expressed as a ratio relative to 1.00 at the basic limit, so an ILF of 2.50 means the premium at the selected limit is two and a half times the basic-limit premium.

⚙️ ILFs are derived from [[Definition:Actuarial science | actuarial]] analyses of [[Definition:Loss distribution | loss distributions]] — specifically, how the severity tail of claims behaves at progressively higher dollar thresholds. Because large claims are relatively rare, each incremental increase in the policy limit adds proportionally less expected loss, which is why ILFs rise at a decreasing rate. Rating organizations such as the [[Definition:Insurance Services Office (ISO) | Insurance Services Office (ISO)]] publish standard ILF tables for major liability lines, segmented by coverage type and sometimes by hazard group. Carriers may adopt these tables as filed, modify them to reflect their own [[Definition:Loss experience | loss experience]], or develop proprietary factors — especially for specialty or [[Definition:Excess and surplus lines | excess and surplus lines]] risks where standard tables may not capture the true tail behavior.

💡 Selecting the right ILF table — or knowing when to deviate from one — is a significant source of competitive differentiation among [[Definition:Insurance carrier | carriers]] and [[Definition:Managing general agent (MGA) | MGAs]]. An insurer that underestimates severity in the tail will charge too little for high limits and attract adverse selection from sophisticated buyers, while an insurer that overcharges will lose business to competitors with sharper pricing. [[Definition:Insurtech | Insurtech]] analytics teams increasingly use [[Definition:Predictive modeling | predictive modeling]] and large-loss simulation to refine ILF curves beyond what traditional aggregate data supports, particularly in lines like [[Definition:Cyber insurance | cyber liability]] and [[Definition:Directors and officers liability insurance (D&O) | D&O]] where loss development patterns are still maturing.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Policy limit]]
* [[Definition:Loss distribution]]
* [[Definition:Insurance Services Office (ISO)]]
* [[Definition:Base rate]]
* [[Definition:Excess and surplus lines]]
* [[Definition:Actuarial science]]
{{Div col end}}

Definition:Increased limits factor (ILF) - Revision history

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