Risk classification is the practice of grouping people together according to the risks they present, including similarities in costs for potential losses or damages, how frequently the risks occur, and whether steps are taken to reduce or eliminate the risks.
Certain industries classify risks as low, medium, and high. Insurance companies group them using the labels standard, substandard, and preferred. Whatever the grouping, the members of the group share the same characteristics. They may share the same cost for a loss or they may share the same way of eliminating or reducing them. Insurers can offer credits for insurable subjects that present lower risks.
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