Exam DISC-RM Practice Question 200
Study guide: Exam DISC-RM
An insurer's homeowners rates assume that the risks in each rating class have about the class's average expected loss. A new agent starts sending the insurer many older homes with deferred maintenance, which the rates for their class did not contemplate, and the underwriters accept them all at the class rate. What is the most likely effect?
- A) The class's loss ratio stays on target, because the rate already includes a profit provision
- B) Expected losses in the class rise above what its rates assume, so its loss ratio worsens
- C) Premiums in the class rise automatically, because the class rate follows the risks written
- D) Nothing changes until the next rate filing, because underwriting affects only new classes
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