[C072]

classification

The systematic arranging of properties, persons or business operations into groups or categories according to certain criteria. The purposes of such classification in insurance are to create bases for establishing statistical experience and determining rates, and to avoid unfair discrimination. The essential concept of establishing classifications is that each risk should bear its fair share of the overall cost of expenses and losses in relation to its own relevant expenses and hazards. It is unfair discrimination to charge different rates for similar risks, and it is equally wrong to treat in the same manner risks which have different costs and expenses.

(See unfair discrimination, discrimination and selection.)