Experience Rating Reassessed

The heterogeneity of risks and the need for experience rating is a widespread problem and is not confined only to insurance or to casualty insurance. An illustration is the familiar passage: "Beware of false prophets, which come to you in sheep's clothing, but inwardly they are ravening wolves. Ye shall know them by their fruits." (Matthew 7: 15) The development of commercial package policies with their combination of a broad spectrum of property and casualty coverages has brought about the need for reassessing the different experience rating plans which we presently use in the various separate lines of insurance. When one policy embraces several lines of insurance the question naturally occurs as to which of the present experience rating plans, if any, is appropriate for the package. These new packages probably need experience rating more than the separate coverages where the rates, classifications and coverages have been seasoned by many years of experience. Just as the experience incurred under the homeowners policies led to a number of changes in the coverage and rating of those policies, so also the experience under these new commercial package policies will undoubtedly lead to modifications and changes in the original programs. In such a transitional period the experience incurred by an individual risk is of particular value in adjusting the rate closer to the inherent hazard of that risk.