Washington State Insurance Practice Exam

Which rating method is not based on actual loss record but on factors indicating the probability of loss occurrence?

1. Class Rating

2. Experience Rating

3. Judgment Rating

4. Merit Rating

The correct answer is: Merit Rating

Merit Rating is the rating method that is not based on actual loss record but on factors indicating the probability of loss occurrence. Merit Rating focuses on factors such as the insured's risk management practices, safety programs, and loss prevention measures to determine the appropriate premium. This method rewards policyholders for maintaining a favorable loss history and implementing risk mitigation strategies. The other options are: A. Class Rating: This method groups similar risks together and applies the same rate to all insureds within that class. B. Experience Rating: This method is based on the actual loss experience of the insured, where premiums are adjusted based on past claims history. C. Judgment Rating: This method involves individual underwriting judgment to determine the appropriate premium based on various factors not captured by other rating methods.