Underwriting Methods

Underwriting Method

Manual Rating (“Pooling”)

Manual rating uses actuarially defined “manual” rates as the basis for determining the insurance rate any given plan will charge. A manual rate is an insurer’s standard rate which they would have set for each demographic.

Various factors such as age, gender, occupation, and geographical location combine to form a demographic (i.e. 35 year old Male accountants in Toronto). Actuaries, under the employ of an insurance company, will set manual rates for each demographic based on the amounts typically claimed by that given demographic over the insurer’s entire block of clients. The manual rate that is set for each demographic, when paid by all clients, is meant to be sufficient to cover all claims from that demographic.

Manual rating is often used for smaller clients, or for benefits which involve a low incidence but a high monetary benefit per claim. In other words, manual rating is used when claims data is in low quantities (small numbers of claims are made by the client in question), or when premium-to-claim ratios (“experience) are volatile. A small amount of data, as well as volatile data, is unreliable in predicting the future and setting rates.

If the demographics of a group change, the manual rate that they are charged can change. Changes in manual rates can also occur from changes in: interest rate assumptions, mortality/ morbidity data and, the insurer’s actual experience across their entire business.

Experience Rating

Experience rating means insurance rates are based on the amount of claims a group has claimed in the past.  Under this method, each group will have different insurance rates than any other group, as their own rates will be based on the claiming patterns specific to that group alone.  When experience rating is used, it is the goal of the underwriter to ensure that the rates paid by the group in question are sufficient to cover all claims from this given group.  Experience rating is used when claims data is in abundance as higher amounts of data are better able to predict rates required to fund future claims.


Credibility is a term used solely when discussing experience rating.  Credibility is defined as the extent to which a group’s insurance rates are based on their claims alone.  When experience rating is used, but a group is not “fully credible” the rate basis will be a combination of experience and manual rating.

Experience rating without full credibility will be used when claims in a given area are not particularly low, but are also not in abundance (i.e. medium data levels).