Not every risk can be priced from its own history. Class rating sets premiums according to the average loss experience of a group of similar risks that share defined characteristics. All members of the class pay the same rate before individual modifications.

Personal auto, homeowners, and many small commercial risks are class-rated. Age, territory, construction type, or business classification determine the class. Actuaries develop the rates from aggregated industry or company data. The method is administratively efficient and statistically stable when classes are homogeneous.

Class rates form the starting point; schedule or experience modifications may then adjust the premium for better or worse individual features. Regulators review class plans for unfair discrimination. The tension between refinement of classes and statistical credibility is a permanent feature of rating systems.

• Premium based on average risk of a defined group
• Used when individual experience is limited
• Administratively simple and statistically stable
• Often modified by individual risk features