Which term refers to charging insurance based on risk data?

Which term refers to charging insurance based on risk data?

• A. Ratemaking
• B. Underwriting
• C. Claim settlement
• D. Premium allocation

Answer: (A)

Ratemaking is the process of charging insurance based on risk data. It involves turning risk information into a premium by estimating expected losses (the pure premium) from factors like aircraft type, hull value, usage, territory, and flight hours, then adding expenses and a profit loading to arrive at the price. In aviation insurance, this means using actuarial analysis of loss history and exposure units to set class or policy-specific rates that reflect the underlying risk. Underwriting, on the other hand, uses risk data to decide whether to insure a risk and what terms to offer, but the actual price comes from ratemaking. Claim settlement is about paying claims when they occur, and premium allocation refers to distributing premiums across policies or lines rather than determining the price from risk data.

Ratemaking is the process of charging insurance based on risk data. It involves turning risk information into a premium by estimating expected losses (the pure premium) from factors like aircraft type, hull value, usage, territory, and flight hours, then adding expenses and a profit loading to arrive at the price. In aviation insurance, this means using actuarial analysis of loss history and exposure units to set class or policy-specific rates that reflect the underlying risk.

Underwriting, on the other hand, uses risk data to decide whether to insure a risk and what terms to offer, but the actual price comes from ratemaking. Claim settlement is about paying claims when they occur, and premium allocation refers to distributing premiums across policies or lines rather than determining the price from risk data.