Which rating system is typically used when insureds share similar characteristics in property insurance?

The class rating system is designed for situations where multiple insureds exhibit similar characteristics, allowing insurers to classify these risks into groups. This method is efficient and effective because it simplifies the underwriting process and reduces administrative costs. It is based on the assumption that if a large number of insureds share common traits – such as the type of property, location, and risk factors – they are likely to experience similar loss exposures and can thus be charged similar premiums.

For instance, businesses in a particular industry or homes located in the same geographical area may have comparable risk levels, making class rating an appropriate choice. By categorizing these similar risks together, insurers can more accurately assess the likelihood of claims and establish rates that reflect the overall risk profile of that class.

Other systems, such as individual rating, would apply to unique risks that do not fit neatly into an established class, while group rating applies broader group dynamics rather than focusing on individual characteristics. State-based rating is tied to regulatory frameworks rather than the characteristic similarities among insured properties.