Georgia Property & Casualty Practice Exam

Which rating system is used in property insurance underwriting when insureds share similar characteristics?

1. Individual rating

2. Class rating

3. Group rating

4. State-based rating

The correct answer is: Class rating

The class rating system is utilized in property insurance underwriting when insureds share similar characteristics. This approach is based on pooling together individuals or properties that exhibit comparable risk profiles, allowing insurers to apply a standardized rate to all members within that class. For example, homes in a specific geographic area built to similar standards may be grouped together, considering they face similar hazards and protection levels. Using class ratings simplifies the underwriting process by using statistical data to determine the average loss for the entire group, resulting in more efficient pricing. It helps insurance companies identify and manage risk across their portfolio, enabling them to offer competitive rates while maintaining viability in their risk exposure. This method contrasts with individual rating, where premiums are calculated based on the unique risk factors of a specific insured, which can lead to more variability in pricing. In group rating, unlike class rating, rates are applied based on the characteristics of the entire group rather than specific shared traits of the individuals. State-based rating pertains to regulations and guidelines established by state insurance departments rather than the classification of risks in underwriting.