What is a major component of merit rating in commercial lines?

Merit rating in commercial lines heavily relies on the history of loss experiences of the insured. This method assesses the risk of providing insurance based on the claim history of a business. A business that has a history of frequent or severe claims is considered higher risk and may face higher premiums or less favorable coverage terms. Conversely, a business with a clean loss history may qualify for reduced rates or better terms, as they demonstrate a lower likelihood of filing claims in the future. This focus on actual loss experience enables insurers to more accurately evaluate and price risk, tailoring insurance costs to reflect the individual risk profile rather than relying solely on broader industry averages or other factors.