Which approach does an experienced underwriter use to set a rate when there is no established rating method?

Which approach does an experienced underwriter use to set a rate when there is no established rating method?

• A. Standard industry averages
• B. Judgement rates based on the particular risk
• C. The insured's premium application
• D. A flat rate determined by the insurer

Answer: (B)

When there’s no established rating method, an experienced underwriter relies on judgement rating, tailoring the price to the specific risk. They assess the unique factors of this applicant—exposure units, construction, occupancy, location, past loss history, coverage limits, and policy terms—and adjust the rate up or down to reflect expected losses and expenses. This hands-on, risk-specific approach captures differences that generic methods miss and aligns the price with the true level of risk. General industry averages are too broad to reflect the particular risk, and the insured’s premium application is a data source rather than a method for setting the rate. A flat rate would ignore the individual risk profile, making judgement-based pricing the best fit.

When there’s no established rating method, an experienced underwriter relies on judgement rating, tailoring the price to the specific risk. They assess the unique factors of this applicant—exposure units, construction, occupancy, location, past loss history, coverage limits, and policy terms—and adjust the rate up or down to reflect expected losses and expenses. This hands-on, risk-specific approach captures differences that generic methods miss and aligns the price with the true level of risk. General industry averages are too broad to reflect the particular risk, and the insured’s premium application is a data source rather than a method for setting the rate. A flat rate would ignore the individual risk profile, making judgement-based pricing the best fit.