Which rating starts with class rates and is then modified based on the likelihood of losses?

• A. Merit Rates
• B. Schedule Rating
• C. Experience Rating
• D. Retrospective Rating

Answer: (A)

Merit rating starts with the standard class rates and then applies a modification based on the likelihood of future losses. In this approach, the base manual premium is adjusted by a merit factor that reflects the insured’s loss history and expected risk, so a better-than-average loss history can reduce the premium while a poorer history increases it. This aligns with starting from class rates and tailoring the price to the insured’s risk profile. Other methods adjust premiums for different reasons—schedule rating uses a credits/debits schedule for specific risk features, experience rating bases the premium on actual past losses, and retrospective rating ties the final premium to losses incurred during the policy period—rather than the merit-based adjustment tied to projected loss likelihood.