6/G - Insurance Rating

Question 1

Insurance Rating

Answer 1

Insurance Rating System

Risk management tool used to identify high-risk individuals and determine appropriate premiums for the level of risk

Question 2

Rating System

Answer 2

Any change to rating schedule must be filed with Dept. of Insurance

• If Insurer wants to charge higher rates, Dept of Insurance actuaries review basis of change to see if proposed premiums are fair
• Actuaries deny changes to rating schedule if it seems insurer:
  
  • wants to charge too much, or
  • is setting prices too low to remain solvent
• Result: customers have more varied insurance options that reflect the actual risks in the market

Question 3

Auto Insurance Ratings

Answer 3

• Insurers must make more in premiums than they pay out of accidents
• The higher the risk, the higher the premiums
• Insurer reviews certain things to measure risk in auto insurance:
  a. where the car is kept/driven (county or zip code)
  b. how car is used (ex. miles driven per year)
  c. insured’s demographic profile and driving record

Question 4

WC Ratings

Answer 4

Workers’ Compensation Rates

• Some jobs involve more chance of injury than others (loggers, roofers, etc.)
• WC insurers use rating system to reflect this reality

WC insurance rating system:

• Every type of job is put into a separate class
• Within each classification, there is a different rate for each $100 of payroll

Result: a company's WC premiums are affected by every worker's:
   - job classification (high or low risk)
   - salary
Other items that can affect WC rating:
   - number of claims filed
   - management
   - maintenance
   - bill payment history

Question 5

Insurer Ratings

Answer 5

Customers should weigh their options carefully when buying insurance

• Independent organizations rate financial health of insurers based on:
  
  • performance
  • experience
  • management
• A.M. Best (well-known insurance rater) rates insurers’ financial strength by letter A++ to F