Short rate is in reference here to a cancellation of an insurance policy. Generally, there is no fee for cancellation except if it is cancelled at the insured's request; at that point (in some states) the carrier is alloweda to short rate cancel a policy. So with a 10 percent short rate cancellation the policyholder requests the cancellation of the policy and he or she will lose 10% of the unused premium.
A short rate cancellation is defined on our Insurance terms page as a policy termination in which the refunded premium is not proportional to the amount of time remaining in the policy period due to the fixed expenses incurred by the company. The insured will generally pay more for each day of coverage than if the policy had remained in force throughout the entire policy period.
If you are receiving a ten (10) percent short rate, then that is the percent the state allows the insurance company to charge the driver as a penalty on their returned premium. For example, in Florida it is 10%.
Here is an explanation of short rate cancellation that may help you understand better. When the policy is terminated prior to the expiration date at the policyholder's request the earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish its own short-rate schedule.
Normally the cancellation of an auto insurance policy and the type of fee associated with it is regulated by each state and its own statute or laws so you should check with your state's insurance regulator to find out what cancellation fees insurance companies may be allowed to charge.