The following lists common rating factors for most of the common lines of insurance offered. I didn’t create these lists. I compiled these from an alternative source for future reference. Also they only represent a subset of all the possible rating factors that can be used.
• Length of holiday – The longer the trip the longer the period of cover and hence increasing the probability policyholders making a claim
• Destination – different destinations have different exposures to risk. The cost of attaining medical attention or transport costs is also different for different areas.
• Age and gender – This rating factor impacts the likelihood and the type of medical claim the policyholder is exposed to.
• Cover type – This includes how many people are covered and the level of inclusions such as cancellations, baggage loss and medical costs.
• Length of time between purchase and travel – The longer the gap the higher the chance that a cancellation claim may occur.
• Age of driver(s): this is seen as a proxy for experience or riskiness of driving behaviour, which will influence the size and frequency of claims
• Sum insured: a higher sum insured may lead to higher payouts if a claim occurs
• Claims history: previous claims may indicate poor driving and therefore a higher likelihood of future claims
• Type of car: factors such as make/model and age may influence the occurrence and severity of claims (for example, if it is an expensive car)
• Business vs private use: commercial vehicles are typically driven more often or for longer periods of time, which increases relative exposure
• Location: the postcode may be an indicator of various risks such as weather and theft (due to local crime rates)
• Parking location: whether it is parked in a secure garage or on the street may affect the possibility of theft
Medical malpractice insurance for doctors:
• Specialty of practice – the most important rating factor – the type of work that doctoris performing (i.e. General Practice, Obstetrics, Neurosurgery, etc.). Certain practices are riskier than others.
• Location of work – State of practice (i.e. NSW, VIC, SA, etc.), urban or rural location (rural locations can have a higher risk), private practice or in a public or private hospital (practice in public hospitals can have a higher risk and are not subject to certain government recoveries).
• Expected billings/sessions for the year, which is a proxy for how much work the doctor expects to perform. The higher the billings/sessions the greater than risk.
• Number of years being covered (i.e. claim made years) – measures/identifies how many years of historical plus current work will be covered under the claims made policy, since claims are • covered by the year in which they are reported (rather than occurred). If it is an occurrence year based policy, then this might not be a rating factor (except to maybe get a sense at how proficient the doctor may be at his/her practice).
Home property insurance:
• Sum insured – key exposure measure linked with claim size
• Location – the perils a risk is exposed (and hence its claim costs) to will depend on its location. E.g. properties in Far North Queensland are more prone to cyclone/windstorm damage, while properties in Sydney are subject to hail and earthquake damage.
• Age of property – older properties would generally be prone to more damage to newer houses, but newer houses may be more costly to repair.
• Building material – how prone a property is to damage will depend on its construction materials. E.g. a weatherboard house would sustain more damage than a brick/concrete built house.
• Policy age – tend to find that newer policies tend to have worse claims experience, possibly due to bad risks constantly churning between insurers to get best price.
• Prior claims experience – this is a contentious rating factor (on a technical level anyway) I believe. Similar to how NCB status on motor insurance is generally found to be a non-significant factor in technical analysis, claims history does not appear as a significant predictor of claim costs. However most insurers include it as part of their target price calculations.
Consumer Credit Insurance:
• Length of the loan – The longer the loan length, the larger the exposure to risk
• Type of cover, whether it is a single cover or double cover
• Occupation of the insured – Some jobs are more prone to redundancy than others
• Age of the insured – Older people will have more chance to have accident
• Exposure measure is sum insured/loan amount
• Occupation of Employees
• Wages Paid to Employees
• Industry of Employer
Certain industries may often be subjected to additional safety criteria (e.g. mining)
• Claims history of Employer
• Special rates for apprentices and non permanent workers
Extended warranty product:
• Type of products (e.g. washing machine, TV, fridge)
both claim frequency and repair cost would vary by different type of product
• Cost of goods
key exposure measure links to the repair cost, hence claim size
likely to impact the claim frequency, as some brands are more reliable then others even after their original warranty
• Length of original warranty
linked to exposure measure, as don’t need to cover for the period of the original warranty
• Domestic/ imported good
likely to impact the repair cost, as there might be no part to replace for imported good
linked to the cost of transport to the repair centre
• Age of Boat. Newer boats attract a higher premium, while older boats attract a lower premium. The repair costs for newer boats are higher in general.
• Boat Value. The higher the boat’s value at the commencement of the policy, the higher the premium due to our increased exposure to risk.
• Type of boat. Small powerboats or sailing boats attract lower premiums than high speed powerboats or yachts.
• Hull construction material. Boats constructed of fibreglass tend to attract lower premiums than boats constructed of timber.
• Optional covers (eg. Waters Skiers Liability, Racing Cover, Additional Boat Contents Cover). The more optional covers you choose the higher your premium will be.
• Level of basic excess. If you choose a higher basic excess this will attract a lower premium, due to a lower claim cost retained by the insurer.
• Payment frequency. If you pay by the month your premium will be higher than if you chose to pay in one annual payment because insurer charges a monthly fee.
Lenders Mortgage Insurance (LMI):
• Region: different areas are subject to different property market forces, for example prices in Sydney continue to trend upwards, while those in Hobart have been going sideways.
• Type of property (i.e. free-standing house, apartment, etc) and its value
• Loan to valuation ratio: the more that is being borrowed the higher the risk
• Loan term: shorter term loans are riskier due to higher monthly repayments
• Rating variables using the borrower’s information include:
• Credit score
• Employment history, for example, if the borrower is self-employed or have had unexplained periods out of the workforce they’de be considered higher risk
• Income and details on any existing loans
• Whether they’re a first home buyer or not
Business insurance (SME):
• Location for each of the business(e.g. franchise)
• Then for each of the business:
• Liability sum insured (there is usually a minimum sum insured requirement)
• Building sum insured
• Stock & content sum insured which may contain regular stock and seasonal stocks
• Number of employees
• Business type – different businesses have different suppliers and may be more susceptible to disruption and thus have differing claim frequencies;
• How long the business has been running – more established businesses may have contingency plans in place which may reduce the frequency of claims;
• Annual gross revenue – the greater the revenue, the larger the average claim size;
• Number of employees – indicator of the size of the business where a greater number of employees suggests a larger business and a greater than average claim size;
• Past claims history – businesses which have had claims in the past may be more likely to claim in the future.