Continuing on our journey of understanding insurance pricing we are going to take a deeper look at individual rating. This type of insurance pricing is reflective upon the individual consumer and can be evaluated in four different ways. Knowing these pricing methods can give and consumer or insurance professional an advantage when negotiating insurance premiums.
1. Experience Pricing - This type of rating is based on the claims or loss ratio and is focused on what insurers call a "credibility factor". The credibility factor is the insurers method of using past experience to determine future claims on an insurance policy.
2. Judgement Pricing - This type of pricing is very subjective, but is determined by the insurers judgement of a certain class of business. This type of pricing is common with new technology companies where a claims history does not exist. It is important for a consumer to work with an experienced insurance broker when judgment pricing is being considered because small differences in explanation can result in large variances in pricing.
3. Schedule Pricing - In schedule pricing the insurer will apply a base rate for pricing then add charges or credits in order to determine the appropriate price. This type of pricing is used when common exposures are being priced in unique situations. For example, if two identical log cabins should be priced the same, but one is located on an isolated island in the middle of a lake. Chances are the insurer will apply the same base rate but charge extra for the isolated cabin.
4. Retrospective Pricing - This type of pricing is unique and is commonly used for businesses with large fluctuations during their operations. With retrospective pricing the insurer will charge a deposit premium then adjust at year end depending on the actual exposure the company had during the year.
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The Base Team
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