Which rating system relies on an insured's claims history to determine insurance rates?

Experience rating is the correct choice as it directly correlates an insured's past claims history with their current insurance rates. This method takes into account the frequency and severity of claims made by the insured over a specific period. Essentially, if an insured has a history of frequent or high-value claims, their experience rating may result in higher premiums, reflecting the increased risk that they present to the insurer. Conversely, an insured with a clean claims history may benefit from lower premiums due to a favorable claims experience.

This approach is designed to create a more tailored insurance pricing model that rewards low-risk behavior and penalizes high-risk behavior, promoting safer practices among insured parties. Other rating systems, like flat rate and guaranteed issue, do not consider individual claims histories and instead apply uniform rates or issue policies regardless of prior claims, which does not capture the risk profile of the individual insured. Standard rating, while offering a general rate structure, does not personalize the rate based on claims history in the way that experience rating does.