Texas General Lines — Life, Accident, Health and HMOGeneral InsuranceHard
A group health insurance policy covers employees of a large corporation. The insurer calculates premiums based on the claims experience of this specific group, rather than the broader community. This method of premium calculation is known as:
- AExperience rating
- BCommunity rating
- CManual rating
- DJudgment rating
Show answer & explanationAnswer & explanation
Correct answer: A. Experience rating
Experience rating is a method of determining premiums based on the past claims experience of a specific group or individual risk. This is commonly used in group insurance to tailor premiums to the actual risk exposure of that particular group.
Why the other options are wrong
- B. Community rating involves charging all insureds in a geographic area the same premium for the same coverage, regardless of their individual or group claims experience.
- C. Manual rating uses rates published in a manual, typically for similar classes of risks, without individual or group-specific adjustments.
- D. Judgment rating involves setting premiums based on an underwriter's subjective evaluation of the risk, often used for unique or unusual exposures.
Experience Rating
A method of determining insurance premiums where the premium rate for a specific group or policyholder is based on their own past loss experience, rather than the general loss experience of a larger community or class.
- Common in group health and workers' compensation insurance.
- Rewards groups with good claims history with lower premiums.
- Can lead to higher premiums for groups with poor claims history.
- Contrasts with community rating.
Memory trick: Experience looks at YOU, Community looks at all, Manual for the masses, Judgment for the new haul.