Insurance Classification Insurance classification is the method insurance companies use to put potential insured clients into groups which are based on varying levels of risk and whether they should be covered by insurance, the cost and length. Some factors used to determine the terms are age, sex, marital status and occupation. This is also similar to how classes are divided in society. Those who have more wealth are usually given higher statuses. Similarly, insurance companies give better coverage to those who pay higher premiums. When determining loss during insurance classification information is collected in a database, factors such as life expectancy are predicted, and ratios are used to calculate expected loss. The actual loss is calculated for each insured person. A person pays an insurance premium for a period of time. When he or she has claims these are considered to be losses. A loss ratio is a ratio of losses to premiums. If the loss ratio is high that means that the insurance holder was charged too little for their premiums. If it is low then the policy holder was charged too much. In order to compete with other companies insurance companies have to offer lower premiums. So the insurance company has to pass on the additional cost to other policy holders. This leads to high losses. As a result, the insurance company will have to pay more money for the claims and will not have much left. In order, to cover this cost they will have to raise the price of the premiums which will cause their clients to seek other insurance companies. So they try to maintain an average loss ratio. If the loss ratio of a group is above or below average then the insurance company has not been able to correctly predict their losses. However, sometimes the company wants the loss ratio to be above average as part of their business strategy. If they are trying to acquire a group of people they may lower their premiums because of the expected losses. This results in a loss ratio which is higher than the average. Thus, insurance classification is done using information from applications, questionnaires, credit checks, etc. It is then used to determine whether the person will submit claims. The size of these potentials claims is also estimated. The new technology of genetic testing will be very beneficial to insurance classification. This device will help to detect markers that will indicate the percentage chance that a person will develop a disease. This information will help in classification and developing appropriate policies. According to Business Insurance, on February 1, 1994 the National Council on Compensation Insurance created policies which make it very difficult for policyholders to correct any errors in classifications. Errors in classification usually result in higher premiums. However, the NCCI requires a payment of $175 before it accepts any requests to check for mistakes. This is unfair for policyholders who have no other option. Also, the NCCI will charge for review of the inspection. These reports are only kept for five years. These additional fees make it very difficult for policyholders to get copies of these inspections which are usually not accurate. The NCCI seems to be biased towards workers’ compensation companies. So they create policies that help them. In Illinois, regulators reviewed these policies and will remind the NCCi that they should cater to policyholders. According to Larry Hochstetler, the director of government, consumer and industry affairs for NCCI, reviews are important in order to check for and correct errors in classification. They do not charge employers that request copies of reviews. Anyone else that wants one is charged fairly.