Rating & pricing
How the premium is actually computed — and where the schedule-rating credit (a possible insurer-approved evidence use) lives. All STABLE.
The fundamental equation
Section titled “The fundamental equation”Premium = Rate × Exposure units
- The rate is the price per unit of exposure.
- Exposure units measure the amount of risk (per $1,000 of property value, per $100 of payroll for workers comp, per vehicle, per employee, etc.).
The rating methods (know all five)
Section titled “The rating methods (know all five)”| Method | How it sets price | Best for |
|---|---|---|
| Manual / class rating | Look up the rate in a published table by class. | Large, homogeneous groups (auto, homeowners). |
| Experience rating | Adjust the manual rate up/down by the insured’s own past loss history. | Mid/large commercial accounts (e.g., the workers-comp experience mod). |
| Schedule rating | Apply debits and credits for specific risk characteristics of this account. | Commercial risks with notable individual features. |
| Retrospective rating | Final premium trues up to actual losses during the period (within a min/max). | Large accounts willing to share risk. |
| Judgment rating | Underwriter prices from expertise when there’s no credible loss data. | Novel/unique risks — e.g., emerging AI exposure. |
Schedule rating = the Glacis control hook
Section titled “Schedule rating = the Glacis control hook”Schedule rating lets the underwriter apply credits (discounts) or debits (surcharges) for specific, identifiable characteristics of an individual risk — better management, safety programs, loss-control measures, etc. STABLE
A runtime evidence packet may support a named loss-control characteristic if an authorised underwriter finds it relevant and the rating rules permit it. Receipts do not automatically establish lower risk or a premium credit. VERIFY the carrier’s criteria, range, documentation and applicable law before proposing a price change.
Novel risk and judgement
Section titled “Novel risk and judgement”Judgement can contribute to assessment when credible experience is limited. Pricing still requires an exposure definition, plausible frequency/severity and uncertainty. Do not assume every AI risk has no loss history or must use the E&S market. STABLE
Rate regulation (concept; specifics VERIFY)
Section titled “Rate regulation (concept; specifics VERIFY)”Admitted carriers must generally file rates with the regulator, which polices that rates are not inadequate, not excessive, and not unfairly discriminatory. E&S (non-admitted) carriers enjoy freedom of rate and form (one reason novel risk goes there). STABLE
→ 03 Loss ratio & combined ratio
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