Credibility in rate making is used to make insured groups with few exposure units pay their full cost of poor loss experience.

Question

Quizplus · Accepted Answer

Credibility in rate making is used to adjust the influence of statistical data (such as loss experience) based on the size of the data set. For groups with few exposure units, less credibility is given to their own loss experience, and they are more influenced by the larger pool or industry data, rather than making them pay the full cost of poor loss experience directly.

Credibility in Rate Making Is Used to Make Insured Groups