How is Experience Rating determined?

Experience rating is primarily determined by analyzing the claims history of a specific group. This method takes into account the actual claims incurred by that group over a certain period of time, allowing insurers to assess the risk associated with providing coverage to them. By focusing on the unique claims experience of a group, insurers can tailor premiums more accurately to reflect the group’s specific risk profile. This individualized approach often leads to premiums that are more closely aligned with the actual risk the insurer is taking on.

Other methods, such as analyzing market trends, setting premiums based on broad actuarial tables, or using national insurance standards, do not provide the level of specificity and tailored assessment that experience rating offers. These approaches might apply broader assumptions and generalizations that may not reflect the particular experiences or risks associated with the group in question. Hence, the basis of experience rating lies solidly in historical claims data specific to the group, making the choice that focuses on claims history the correct one.