Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What is the purpose of the claims history factor in insurance ratings?

1. To ensure compliance with regulations

2. To predict potential future losses

3. To determine the resale value of the property

4. To establish insurance premiums for new policies

The correct answer is: To predict potential future losses

The claims history factor in insurance ratings serves to predict potential future losses. Insurers analyze a policyholder’s past claims to assess the likelihood of future claims. A history of frequent or severe claims can indicate a higher risk to the insurer, leading them to adjust premiums accordingly. This methodology allows insurers to charge premiums that are commensurate with the level of risk associated with a particular policyholder, ultimately leading to more accurate pricing and risk management within the insurance portfolio. In this context, the other options do not align with the primary purpose of claims history. Compliance with regulations, resale value determination, or establishing premiums for new policies may involve different data and considerations. The claims history focuses specifically on the insured's track record concerning claims and their implications for future loss potential.