Property and Casualty Insurance Practice Exam

Which rating method uses a system of debits or credits based on particular insured characteristics?

1. Judgment rating

2. Experience rating

3. Schedule rating

4. Manual rating

The correct answer is: Schedule rating

The schedule rating method utilizes a system of debits and credits that applies to specific characteristics of the insured. This approach allows insurers to adjust the base rate by adding or subtracting charges based on individual risk factors. These characteristics may include the type of business, its location, safety practices, and other relevant operational details, enabling a more tailored pricing mechanism for each policyholder. This method provides granularity in risk assessment, promoting fairness in premium determination. For instance, if an insured has superior safety measures in place, they may receive a credit, effectively lowering their premium. Conversely, if they exhibit riskier attributes, a debit may be applied, increasing their premium. This individualized approach contrasts starkly with other rating methods. Judgment rating relies on the underwriter's expertise and subjective assessment rather than a structured credit/debit system. Experience rating focuses on a policyholder's past claims history to determine premiums, without the structured debits and credits related to insured characteristics. Manual rating utilizes predetermined rates set by the insurer and does not incorporate individualized adjustments based on specific characteristics, making it less flexible than the schedule rating method.