Underwriters evaluate risk using exposure units and rating factors. Which of the following is a rating factor?

Underwriters evaluate risk using exposure units and rating factors. Which of the following is a rating factor?

• A. Industry
• B. Location
• C. All of the above
• D. Size

Answer: (C)

Rating factors are the variables underwriters use to adjust the base premium per exposure unit to reflect different risk levels beyond just how much exposure exists. Industry, location, and size all influence how much risk a given exposure carries, so each serves as a rating factor. Industry matters because different lines of business have different loss histories and hazard levels. Location matters because where a risk sits affects exposure to perils, crime, and regulatory environment. Size matters because larger operations usually bring greater potential for loss, more assets, or more employees, which can increase both frequency and severity of claims. Since all of these characteristics change expected losses, they’re all used to rate the policy, making all of the above the best choice.

Rating factors are the variables underwriters use to adjust the base premium per exposure unit to reflect different risk levels beyond just how much exposure exists. Industry, location, and size all influence how much risk a given exposure carries, so each serves as a rating factor.

Industry matters because different lines of business have different loss histories and hazard levels. Location matters because where a risk sits affects exposure to perils, crime, and regulatory environment. Size matters because larger operations usually bring greater potential for loss, more assets, or more employees, which can increase both frequency and severity of claims. Since all of these characteristics change expected losses, they’re all used to rate the policy, making all of the above the best choice.