In determining the appropriate premium to charge for coverage, insurers use either class rates or individual rates.
Class Rates
They are also called manual rates or rates that apply to all insureds in the same rating category or rating class. Insureds with similar loss exposure are grouped into similar rating classes.
Class Rates have traditionally been published in rating manuals – books used by underwriters, raters and producers in pricing individual policies. Many insureds within a rating class have loss characteristics that might not be fully reflected in Class Rate.
Merit Rating Plans modify class rates to reflect these characteristics. Merit Rating serves two purposes: -
· It enables the insurer to fine tune the class rate to reflect certain identifiable characteristic of a given insured.
· It encourages loss control activity by rewarding safety conscious insureds with lower premium or rate than those who do not participate in loss control.
Individual Rates
Individual Rates are also called Specific rates are used for commercial property insurance on unique structures. The rate is developed only after detailed inspection of the structure and its contents. Each Individual Rates reflects characteristics such as building construction, its occupancy, public and private fire protection and external exposure.
Judgment Rates
It is a type of individual rate is used to develop a premium for a unique exposure for which there is no established rate. With judgment rating, the underwriter relies heavily on his or her experience.
CHAPTER 5 : UNDERWRITING
