What Does Experience Mean?
Experience, in the context of insurance, refers to the history or record of loss of an agent, policyholder, or other entity. It can also refer to the statistics calculated using the ratio of losses made by the policyholder to the premium of their insurance policy.
Insuranceopedia Explains Experience
An insurance company monitors the experience or the losses experienced by a policyholder to assess the possibility of risks and claims the policyholder will make in the future. Using the experience rating, the insurance company identifies the necessary changes or modifications to the premium to better reflect the level of risk the policyholder represents. If the experience of the policyholder is interpreted to have higher risk compared to other similar policyholders, the insurance company may charge higher premium for this policyholder as a means to ensure claims or losses do not exceed premiums taken in.