What type of rating allows insurers to set premiums based on the merit of the exposures in commercial lines?

Merit rating is a system used in the insurance industry, particularly for commercial lines, that determines premiums based on the individual risk profile of a specific insured. It takes into account various factors related to the insured's loss history and other exposure characteristics, allowing insurers to adjust premiums based on how a particular business has performed in terms of claims compared to others in a similar class.

This approach enables insurers to reward businesses that maintain lower loss ratios with reduced premiums, effectively allowing businesses to have more control over their insurance costs based on their risk management practices and claims history. In contrast, the other rating methods either rely on broader classifications or standardized data rather than merit-based assessments of individual risks. For example, class rating applies uniform rates to similar types of risks without considering individual loss experience, and experience rating also incorporates historical loss data, but more in a collective sense rather than assessing the merit or potential of individual exposures as merit rating does.