See: Rating
***
To estimate proportion of the loss for the underlying policy that is expected in the entire portfolio. The primary reason for going for this type of rating approach is the general lack of credible risk data of exposures, premiums and claims with the insurer or in the entire market. To circumvent this limitation on a logical and systematic basis, the rating approach tries to correlate and extrapolate the data of similar risks for arriving at the rate. Usually the insurer identifies the most important identifiable risk factors which can produce a loss and the premium rating is done by giving different weightages to each of the identified risk factor. Then a basic rate is arrived at by taking the premium rate for similar risks in other markets and each of the identified factor is superimposed on this basic rate by giving a discount or applying loading based on the nature of the risk factor being rates. It is used where there is no (or insufficient) representative claims experience available to calculate the burning cost.