A step policy is an insurance payment structure that follows a step-like function, where the payment amount is a prescribed value over a certain interval and jumps to another prescribed value in an adjacent interval. The amount of payment is a function of where the ground up loss falls within the trigger intervals.
The policy can either be a simple step with one jump (which is seen in the Taiwanese residential market) or it can be a more complex step with multiple jumps (more representative of the cooperatives issuing residential coverage in the Japanese market). Additional information about defining step policies is provided in the Insurance Step Policies in RMS Applications.