Property and Casualty Insurance Practice Exam

Which of the following traditionally defines Manual Rating?

1. Individual assessment without guidelines

2. Consultation of a rate manual for predetermined rates

3. Use of external analysts for rate-setting

4. Adapting rates based solely on customer feedback

The correct answer is: Consultation of a rate manual for predetermined rates

Manual Rating is a method in which insurers determine premiums based on established guidelines and predetermined rates found in a rate manual. This approach allows for systematic and consistent rate-setting across various policyholders while taking certain risk factors into account. The rate manual typically includes information on classifications, loss experience, and various other statistical data that guide an insurer in setting premiums for different types of coverage. Using a predefined manual provides the advantage of objectivity, enabling insurers to avoid biases or arbitrary decisions when determining rates. It helps ensure fairness and compliance with regulatory standards. This structured methodology contrasts with approaches that rely more on subjective judgment or isolated customer experiences.