Risk Classification

Risk classification is a method used by insurance companies to categorize individuals based on their likelihood of experiencing a claim or loss. Factors like age, health, lifestyle, and occupation are analyzed to assess how much of a risk a person presents. This helps the insurer determine fair premium rates—charging higher rates for higher risks and lower rates for safer profiles. Essentially, risk classification ensures that costs are distributed appropriately among policyholders, promoting fairness and maintaining the insurer’s financial stability.