Rating methods used in Property and Casuality Insurane
Property and Casuality Insurance
Property and casualty insurances are the Insurances which protects you and your business.Property insurance covers damages to assets while casualty insurance protects you from claims arising from liabilities. Combining personal lines insurance and commercial insurance can provide you with coverage for general liability and property insurance.Property insurance helps cover stuff you own like your home or your car. Casualty insurance means that the policy includes liability coverage to help protect you if you're found legally responsible for an accident that causes injuries to another person or damage to another person's belongings.
Rating
Rate making, or insurance pricing, is the determination of rates charged by insurance companies. The benefit of rate making is to ensure insurance companies are setting fair and adequate premiums given the competitive nature.
In property and casuality insurance there are mainly Three types of rating methods,they are:
1)Judgment Rating
A judgement rating is an insurance rate that an underwriter assigns to a particular risk based on their subjective evaluation of that risk. Judgement ratings are frequently done on an individual basis and rely heavily on the experience, perception, and talent of the underwriter who makes the final evaluation.The reader may judge for himself to what extent the argument of the opposition is technical or traditional-emotional.This is the method traditional in property insurance including fire, marine, burglary, glass, and power plant; it continues, without the justification in property insurance lines, as the principal technic in commercial accident and health insurance.This way is used most widely, and most justifiably, in marine insurance where objective materials for making rates are least available and where every risk more or less is unlike every other
The influence of the judgment factor on this kind of rate-making is shown in the action of the New York Department in the 1947 fire insurance revision, which against a permitted loss ratio of 475 approved a general rate increase of 8 per cent instead of the indicated 4 per cent increase because of an upward trend in building costs. Another example is the policy of the New York Department not to approve rate revisions unless the indicated change is more than 2/2 per cent up or down nor to approve revisions of more than 25 per cent.8
2) Class Rating or Manual Rating
A class rating is a grouping of people with similar risk profiles for the purpose of issuing them an insurance rate that roughly corresponds to their risk levels.Rates for the very great majority of risks in all lines are made, and in the nature of the case must be made, not for the individual risk but as averages for the members of a group of risks with essentially the same loss-producing characteristics. Manual rates in workmen's compensation and automobile insurance; fire insurance class and blanket rates; rates on the individual in life and disability insurance, are examples.
3) Merit Rating
This rating means a plan which class rates, or manual rates are adjusted upward or downward based on individual loss experience. Merit rating is based on the assumption of loss experience will differ substantially from other loss experiences.
A merit rating is based on a class rating, but the premium is adjusted according to the individual customer, depending on the actual losses of that customer. Merit ratings often determine the premiums for commercial insurance and for car insurance, and, in most of these cases, the customer has some control over losses — hence, the name. Merit ratings are used when a class rating can give a good approximation, but the factors are diverse enough to yield a greater spread of losses than if the composition of the class were more uniform. Thus, merit ratings are used to vary the premium from what the class rating would yield based on individual factors or actual losses experienced by the customer. Merit ratings are determined by 3 benefits: schedule rating, experience rating, and retrospective rating.
(b) List and describe, by numerical examples, the three major rating methods used in property and...
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