Risk Classification Standards [Discussion]

The best time to reach agreement on the rules of the game is before the first pitch. A rules debate during the seventh inning of a close game may product more heat than light. The author acknowledges the current debate over risk classification and observes that some reformers have “fashioned new literature” to form the basis for their desired changes. He attempts to avoid this expediency by defining risk classification standards which How from the nature of insurance and are consistent with insurance statutes. The seven standards suggested are summarized into three broad categories: homogeneous. well-defined. and practical. The author also discusses seven additional characteristics: controllability. incentive value, causality, separation. reliability. social acceptability and admissibility. These are classified as non-standards because, in the author’s view, they are not as important in judging a risk classification plan. The author concludes by discussing how competitive forces in the marketplace will tend to reinforce his risk classification standards.