Which method is commonly used by insurers to set premiums for large groups?

• A. Manual rating
• B. Community rating
• C. Experience rating
• D. Judgment rating

Answer: (C)

Experience rating is used for large groups because it bases premiums on the group’s own actual claims history and payroll data, with credibility adjustments as needed. When a group is large enough to provide reliable claims data, the insurer can estimate future costs more accurately by reflecting how the group has performed in the past. This makes the premium closely aligned with the group’s real risk, rewarding safer experience and better aligning pricing with expected costs.

Manual rating, by contrast, assigns rates based on broad classes or job categories without group-specific experience. Community rating bases premiums on average risk for the community, not the individual group. Judgment rating relies on an underwriter’s discretion rather than solid group data, which is less common for large groups where enough data exist to price more precisely.