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Risk/Rating factor

S

shelly

Member
Anyone know what the difference is between a risk factor and a rating factor?
 
Anyone know what the difference is between a risk factor and a rating factor?
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Risk factors are the factors that influence the intensity of the risk, while rating factors are the factors we use to determine the premium.

Ideally, we should use all risk factors as rating factors. But in practice there may be too many risk factors to use them all in a cost effective way, and some risk factors might not be easy for the insurer to measure.

For example, age is an important risk factor in life insurance and is nearly always used as a rating factor.

Driving speed is probably a key risk factor for motor insurance. However, this is not easy for insurers to measure. Instead, rating factors are used as a proxy for driving speed. For example, the insurer may expect young men or owners of sports cars to drive the fastest. Past speeding fines are also a good rating factor here.

Best wishes

Mark
 
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