Methods Used for Premium Rates Establishment

D

The establishment of premium rates is a critical aspect of insurance underwriting. Insurance companies need to set premium rates that are high enough to cover potential losses but still affordable for their customers.

The three main methods used for the establishment of premium rates are manual, judgmental, and merit rating.

1. Manual Rating: This method involves setting premium rates based on a predetermined set of criteria, such as the type of policy, the age and gender of the insured, and the amount of coverage required. These criteria are established based on statistical analysis of historical data and are used to determine the expected losses for a particular group of policyholders.

2. Judgmental Rating: This method is based on the underwriter's judgment and experience. Under this method, the underwriter uses his or her knowledge of the industry and the risk involved to set premium rates for a policy. This method is often used for unique or specialized policies that do not fit into standard insurance categories.

3. Merit Rating: This method is based on the insured's individual risk characteristics. Under this method, the premium rate is adjusted up or down based on specific characteristics of the individual policyholder, such as driving record, credit history, or health status. This method is often used for auto and health insurance policies.

In summary, the correct answer to the question is D. The three methods used for the premium rates establishment are manual, judgmental, and merit rating.