Development, Application and Effect of Schedule Rating in Liability and Compensation Insurance

That all risks within a given classification do not present identically the same hazards has been recognized by underwriters of liability insurance for years and the need of a more refined or detailed system for measuring the hazards in the individual plants has been apparent. Special rating based solely on the individual experience of a risk was too susceptible of misuse to attain universal adoption and was in many respects contrary to the accepted practices of underwriting based on the law of average. It was a serious question also whether past financial results of risk especially in a manufacturing establishment subject to changes was dependable as an indication of probable risks in the future. There was at least an honest difference of opinion among underwriters on that score, one school arguing solely for the retrospective, or experience basis for rate determination; the other for the introspective basis, or an attempt to measure the hazard of the plant under consideration by a detailed physical examination, thereby establishing the probable or anticipatory financial result of risk before underwriting, gauged on an analysis of the presence or absence of known causes of accidents and on the presence or absence of other than pure or inherent hazards of the industry in the plant under consideration, and as is usual when extremes meet, a compromise was the final result.