individual method

In insurance, rate making is the process of determining the price for a unit of exposure, closely linked to underwriting, which involves selecting risks. The rate reflects the expected cost of losses, administrative expenses (loading), and profit.1

There are two primary methods for rate making:
* Manual (Class) Rating: This method applies a uniform rate to all exposures within a predetermined class, assuming members of the class are similar in terms of risk characteristics.1
* Individual (Merit) Rating: This method adjusts rates based on individual risk characteristics. For example, fire insurance rates for commercial buildings might consider occupancy, safety features, and maintenance quality.1

The goal of rate making is to ensure rates are fair, adequate to cover losses and expenses without excessive profit, revised to reflect current costs, and encourage loss prevention.1