All of the following statements about class rating are true EXCEPT
A)Exposures with similar characteristics are placed in the same underwriting class.
B)The rate charged for each class reflects the average loss experience for that class.
C)The complexity of class rating makes it inappropriate for personal lines coverages.
D)It is based on the assumption that future losses to insureds will be determined by the same classification factors currently in use.

Question

Quizplus · Accepted Answer

The other statements are true. Class rating is a common method used in commercial insurance underwriting to group similar risks based on their common characteristics such as historical loss experience, industry, location, etc. The rate for each class reflects the average loss experience for that particular class. Class rating is based on the assumption that future losses to insureds will be determined by the same classification factors currently in use. However, it may not be appropriate for personal lines coverages due to the high degree of diversity and individuality of those risks.

All of the Following Statements About Class Rating Are True