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📝 '''Rating plan''' is the structured methodology an [[Definition:Insurance carrier | insurer]] or [[Definition:Rating organization | rating organization]] uses to translate [[Definition:Risk | risk]] characteristics into a specific [[Definition:Premium | premium]] for a given [[Definition:Policy | policy]]. It encompasses the [[Definition:Base rate | base rates]], [[Definition:Classification code | classification factors]], [[Definition:Rating territory | territory]] relativities, and any modification or discount schedules that, when applied together, produce the final price a [[Definition:Policyholder | policyholder]] pays.

🔧 In practice, a rating plan functions like a decision tree. An [[Definition:Underwriter | underwriter]] or automated [[Definition:Rating engine | rating engine]] starts with a base rate for the relevant [[Definition:Line of business | line of business]], then applies multiplicative or additive factors — such as the insured's [[Definition:Classification code | class code]], geographic [[Definition:Rating territory | territory]], [[Definition:Experience modification factor | experience modification]], [[Definition:Schedule rating | schedule rating]] credits or debits, and any [[Definition:Increased limits factor | increased limits factors]]. For [[Definition:Personal lines | personal lines]] like [[Definition:Auto insurance | auto]] or [[Definition:Homeowners insurance | homeowners]], the plan may incorporate [[Definition:Rating tier | tiering]] variables such as [[Definition:Credit-based insurance score | credit-based insurance scores]] or [[Definition:Claims history | claims history]]. Regulatory requirements dictate how transparent and rigid the plan must be: [[Definition:Workers' compensation insurance | workers' compensation]] plans are highly prescribed, while [[Definition:Surplus lines | surplus lines]] carriers enjoy greater flexibility.

💡 A well-designed rating plan achieves the delicate balance between risk differentiation and administrative simplicity. If the plan is too coarse, the carrier attracts [[Definition:Adverse selection | adverse selection]] by failing to distinguish high-risk accounts from low-risk ones. If it is overly granular, it becomes difficult to implement, explain to agents, and defend to regulators. Modern [[Definition:Insurtech | insurtech]] platforms are pushing rating plans toward real-time, multi-variable models powered by [[Definition:Predictive analytics | predictive analytics]], yet the underlying regulatory requirement remains: every element of the plan must be filed, justified, and applied consistently.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Ratemaking]]
* [[Definition:Rating territory]]
* [[Definition:Rating tier]]
* [[Definition:Experience rating]]
* [[Definition:Schedule rating]]
* [[Definition:Classification code]]
{{Div col end}}

Definition:Rating plan - Revision history

PlumBot: Bot: Creating new article from JSON