Rating Variable
A factor used in pricing or underwriting to predict risk, such as age, location, or driving history. Regulators scrutinize these for proxy discrimination.
A rating variable, also called a rating factor, is an input used to predict risk and set insurance premiums or underwriting decisions. Common examples include age, location, driving record, claims history, and property characteristics.
Rating variables are heavily regulated. A variable may be predictive of risk and still prohibited if it is a proxy for a protected class or if state law does not allow it. Regulators in New York and Colorado require insurers to test rating variables for unfair discrimination and to document actuarial justification.
Carriers should maintain a list of rating variables used in each model, explain why each was selected, and keep testing records showing it does not produce disparate impact. See our glossary entries on underwriting and pricing, proxy discrimination, and actuarial justification.