Washington State Insurance Practice Exam

What type of rating method uses historical aggregate loss and loss adjustment expenses projected to a future point in time?

1. Experience Rating

2. Merit Rating

3. Loss Costs Rating

4. Schedule Rating

The correct answer is: Experience Rating

Experience Rating is the correct answer because it is a type of rating method that uses historical aggregate loss and loss adjustment expenses projected to a future point in time. This method helps insurance companies adjust premiums based on individual policyholder's loss experience. This allows for a more personalized and accurate pricing strategy based on the actual claims history of the insured. The other options are not the correct answer because: - Merit Rating considers the insured's individual loss experience as well, but it focuses more on rewarding or penalizing based on the insured's individual loss record compared to others in the same group or class. - Loss Costs Rating looks at the historical loss and loss adjustment expenses in determining standard rates and is often used as a base for other rating methods like experience rating. - Schedule Rating is a method where the insurance company modifies the rate based on specific characteristics of the insured, such as safety features, loss control practices, or other factors not reflected in the base rate.