Territorial Grouping Of Risks
What Does Territorial Grouping Of Risks Mean?
Territorial grouping of risks is a system used to classify risks in order to establish equitable rates based on their geographical proximity or other standards that account for variations in hazard and expenses. In many liability and property insurance lines, such as automobile insurance, rates are set according to zip code locations. However, this may not always be equitable, as a zip code can change just across the street. This method enables the grouping of risks according to their classifications and territories, using the insurance companies’ claims experience as a basis.
Insuranceopedia Explains Territorial Grouping Of Risks
Location is a crucial factor in determining a company’s loss experience. Even in other lines of insurance, such as workers’ compensation or health insurance, the prevailing conditions that affect claims experience can vary by state. The role of the insurance company is to define a grouping of territories that either exhibit lower or higher exposure than the standard while being large enough to provide significant claims experience for rate-making purposes. This territorial grouping of risks should result in a risk classification system that is reasonable, fair, predictive of risk, and capable of distinguishing between individual risk classifications.
