Arkansas Life and Health Insurance Practice Exam

When an insurer relies on the prior claims history of the group to be insured in determining the rate to be charged, it is called:

1. Community rating

2. Experience rating

3. Manual rating

4. Schedule rating

The correct answer is: Community rating

When an insurer relies on the prior claims history of the group to be insured in determining the rate to be charged, it is referred to as community rating. Community rating involves setting insurance premiums based on the collective claims experience of an entire community or group, rather than individual factors such as age or health status. This method spreads the risk among all members of the group, ensuring that individuals with higher health risks are not charged significantly higher premiums due to their individual circumstances. This promotes affordability and access to insurance for a broader range of individuals within the community. Options B, C, and D are incorrect: - Experience rating involves setting insurance premiums based on the claims experience of a specific group or individual. This approach tailors the premiums to the actual risk level of each entity, as opposed to spreading the risk across the entire community. - Manual rating is a method where insurance premiums are determined by using predetermined rates provided by the insurance company, rather than considering specific individual or group characteristics. - Schedule rating involves adjusting insurance premiums based on specific factors, such as the insured's occupation or industry, to reflect the varying levels of risk associated with different groups.