What practice involves calculating a uniform price per insurance unit for applicants with similar characteristics?

The practice of calculating a uniform price per insurance unit for applicants with similar characteristics is known as class rating. This approach is fundamental in insurance pricing, as it groups applicants into classifications based on shared risk characteristics, such as age, gender, health status, or geographic location. Each class is assigned a specific rate that reflects the likelihood of a claim occurring, thereby ensuring that policyholders with similar levels of risk pay similar premiums.

Class rating allows for more standardized pricing within groups, reducing the subjectivity that can come from individual assessments. This method is essential for maintaining fairness and consistency in premium assignment across a broader customer base. It promotes efficiency in the underwriting process and is commonly used in personal lines insurance, like auto or homeowners insurance, where risks can be more easily categorized.

Other rating methods, such as experience rating and merit rating, consider the individual applicant's history and performance, which may lead to different pricing structures. Rate review, on the other hand, is a broader process of analyzing and adjusting rates but does not specifically focus on classifying applicants based on shared characteristics.