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📋 '''Risk rating''' is the process by which an [[Definition:Underwriter | underwriter]] or [[Definition:Actuaries | actuary]] evaluates and classifies an individual risk — whether a person, property, business, or liability — to determine the appropriate [[Definition:Insurance premium | premium]] and terms of coverage. In insurance, every applicant or insured asset carries a distinct combination of hazard characteristics, and risk rating translates those characteristics into a quantified assessment that drives pricing, [[Definition:Policy terms and conditions | policy terms]], and capacity decisions. The practice sits at the heart of the [[Definition:Underwriting | underwriting]] function across all lines, from [[Definition:Personal lines | personal lines]] homeowners' policies to complex [[Definition:Specialty insurance | specialty]] and [[Definition:Reinsurance | reinsurance]] placements.

⚙️ Rating begins with the collection of relevant risk information — application data, [[Definition:Risk survey report | risk survey reports]], historical [[Definition:Claims | claims]] records, and external data sources such as credit scores, geospatial analytics, or telematics feeds. Underwriters and rating algorithms then assign the risk to a [[Definition:Rating class | rating class]] or apply individual modifiers based on factors like occupancy type, industry sector, claims history, and hazard controls. Many jurisdictions impose regulatory constraints on which rating factors may be used: in the European Union, for instance, gender-based pricing in certain personal lines was restricted by the Court of Justice ruling, while U.S. states each maintain their own approved rating plans filed with the [[Definition:National Association of Insurance Commissioners (NAIC) | NAIC]] or state regulators. [[Definition:Insurtech | Insurtech]] firms have pushed the frontier of risk rating by integrating [[Definition:Artificial intelligence (AI) | artificial intelligence]], [[Definition:Internet of Things (IoT) | IoT]] sensor data, and real-time behavioral signals to create more dynamic, granular assessments.

🎯 Accurate risk rating is the mechanism that keeps [[Definition:Adverse selection | adverse selection]] in check and sustains the financial viability of an insurance portfolio. When risks are under-rated, the insurer attracts disproportionate volumes of poor-quality business and faces unexpected [[Definition:Loss ratio | loss ratios]]; when risks are over-rated, competitive business migrates to rivals offering sharper terms. Beyond pricing, risk rating influences [[Definition:Reinsurance | reinsurance]] purchasing strategy, [[Definition:Capital allocation | capital allocation]] under frameworks like [[Definition:Solvency II | Solvency II]] or [[Definition:Risk-based capital (RBC) | risk-based capital]] regimes, and [[Definition:Portfolio management | portfolio management]] decisions. Getting the rating right is, in many respects, the single most consequential judgment an insurance organization makes on a daily basis.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Underwriting]]
* [[Definition:Rating class]]
* [[Definition:Experience rating]]
* [[Definition:Risk-adjusted pricing]]
* [[Definition:Adverse selection]]
* [[Definition:Predictive modeling]]
{{Div col end}}

Definition:Risk rating - Revision history

PlumBot: Bot: Creating new article from JSON