What typically happens to premiums in experience rating based on an insured's claim history?

In experience rating, premiums are directly tied to the insured's claim history, which means they can increase or decrease based on the number and severity of claims filed. This system rewards policyholders who have a good claims history with lower premiums, while those with a history of claims may face higher premiums as a result of their increased risk profile.

The primary goal of experience rating is to align the cost of insurance with the actual risk presented by the insured. By using individual claim histories, insurers can better assess the likelihood of future claims and adjust premiums accordingly. This results in a more personalized and equitable pricing model compared to flat rates applied irrespective of history or standardized tables that might not reflect individual circumstances. This practice encourages policyholders to manage risk more effectively, as maintaining a good claims record can have a positive financial impact on their insurance costs.