Exam 8: Individual experience rating needs credibility and comparability
An individual risk’s past results can be informative, but changes in exposure, limits and loss maturity must be addressed before blending them with a broader benchmark. Credibility is not a reason to average incompatible bases.
Worked example or practice scenario
An account has adjusted own expected cost 140 and comparable benchmark cost 100 per exposure. With an illustrative credibility weight .30, blended cost is .30×140+.70×100=112. The weight is assumed here, not estimated from the single quoted observation.
Try this next
Describe the data and model needed to justify a weight. Recalculate after an exposure or coverage change and explain why applying the old blend to a different coverage basis can be misleading.
Reading sources
ActNet editorial guide · October 1, 2026 · Original illustrative examples.
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