Which rating modifies a base class rate based on the risk's expected likelihood of losses?

Which rating modifies a base class rate based on the risk's expected likelihood of losses?

• A. Merit Rates
• B. Schedule Rating
• C. Experience Rating
• D. Retrospective Rating

Answer: (A)

Merit rating adjusts the base class rate to reflect the expected loss potential of the specific risk. Start with the standard manual rate for a class, then apply a merit factor that accounts for the insured’s anticipated losses, safety programs, and risk management. A better-than-average risk can receive a lower rate, while a higher-risk profile can push the rate up. This directly ties the premium to how likely losses are expected to be, within the same class. In contrast, schedule rating modifies the rate for particular hazards not captured by the class rating, based on underwriter adjustments. Experience rating bases the premium on actual insured loss history rather than what’s expected. Retrospective rating ties the ultimate premium to losses that occur during the policy term.

Merit rating adjusts the base class rate to reflect the expected loss potential of the specific risk. Start with the standard manual rate for a class, then apply a merit factor that accounts for the insured’s anticipated losses, safety programs, and risk management. A better-than-average risk can receive a lower rate, while a higher-risk profile can push the rate up. This directly ties the premium to how likely losses are expected to be, within the same class.

In contrast, schedule rating modifies the rate for particular hazards not captured by the class rating, based on underwriter adjustments. Experience rating bases the premium on actual insured loss history rather than what’s expected. Retrospective rating ties the ultimate premium to losses that occur during the policy term.