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L1,2 = z(I1) + (1 - z)(I2)
75. For an insurer, the primary goal of individual risk rating

is to price the coverage provided more accurately than
if rates were based only on manual rates. Nontraditional
risk financing mechanisms also may use individual risk
rating techniques to allocate costs.

76. Attributes of Good Individual Risk Rating Systems
Good individual, risk rating systems have the following
attributes :
 serve the needs of the organization using them
 appropriately balance risk sharing and risk bearing
 are not subject to internal or external manipulation
 are simple to administer
 are easy to understand, and
 do not subject the affected entities to large
fluctuations in cost from one year to the next due to
unusual or catastrophic experience

77. A good individual risk rating system does not subject the
affected entities to large fluctuations in costs from one
year to the next due to unusual experience. An individual

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