Risk Classification Standards, [Review of Paper]

Insurance pricing is a combination of rating classification and underwriting selection. The author defines necessary and sufficient standards for rating classification which are not met by underwriting selection or insurance pricing as a whole. It is unreasonable to assert that it is necessary for rating classifications to meet certain standards when the pricing structure as a whole does not meet those same standards. The author's acknowledgment that pricing standards are necessary and appropriate, and his focus on only that portion of the pricing structure which the industry chooses to make visible, while ignoring the entire pricing structure, illustrates the inconsistent standards practiced by the insurance industry, and indicates why many believe that governmental intervention into the insurance pricing structure is necessary and appropriate.