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🏷️ '''Rating tier''' is a classification level within an [[Definition:Insurance carrier | insurer's]] [[Definition:Rating plan | rating plan]] that groups applicants by their overall risk quality, assigning each tier a distinct set of [[Definition:Rate | rates]] or rate multipliers. In [[Definition:Personal lines | personal auto insurance]], for instance, a carrier might maintain four or five tiers — from preferred to non-standard — each reflecting a different blend of [[Definition:Claims history | claims history]], [[Definition:Driving record | driving record]], and [[Definition:Credit-based insurance score | credit-based insurance score]] that corresponds to an expected [[Definition:Loss cost | loss cost]] level.

⚙️ When an application is submitted, the carrier's [[Definition:Underwriting | underwriting]] rules or [[Definition:Rating engine | rating engine]] evaluates a combination of risk attributes and assigns the applicant to the appropriate tier. Each tier effectively operates as a sub-book of business with its own [[Definition:Base rate | base rate]] structure, so the premium differences between tiers can be substantial. Tiering allows a single legal entity — or a group of affiliated companies each representing a tier — to compete across a wider spectrum of risk without lumping disparate exposures into a single pool. [[Definition:State insurance regulator | Regulators]] review tier definitions and the criteria used to place applicants, requiring that the factors be actuarially justified and not unfairly discriminatory under applicable [[Definition:Rating law | rating laws]].

🎯 Effective tiering is a competitive weapon. Carriers that accurately sort risks into the right tiers attract better business at profitable prices while offering competitive [[Definition:Premium | premiums]] to lower-risk [[Definition:Policyholder | policyholders]] who might otherwise shop elsewhere. Poor tiering, on the other hand, leads to [[Definition:Adverse selection | adverse selection]] — the best risks leave because they are overcharged, while the worst risks stay because they are undercharged. As [[Definition:Predictive analytics | predictive analytics]] and [[Definition:Machine learning | machine learning]] enable finer segmentation, many carriers are expanding from a handful of tiers to continuously scored placement algorithms, though the foundational concept of grouping like risks together remains unchanged.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Rating plan]]
* [[Definition:Rating territory]]
* [[Definition:Classification code]]
* [[Definition:Adverse selection]]
* [[Definition:Credit-based insurance score]]
* [[Definition:Preferred risk]]
{{Div col end}}

Definition:Rating tier - Revision history

PlumBot: Bot: Creating new article from JSON