What is a typical disadvantage of specific rates?

Specific rates are often based on the unique characteristics of individual risks rather than pooling them together. This precision, while beneficial in some contexts, comes with the requirement of regular updating to ensure that the rates remain reflective of current market conditions, individual risk factors, and underwriting guidelines. As circumstances surrounding a risk change—such as improvements in safety measures, changes in location, or shifts in market trends—the rates must be adjusted accordingly to accurately represent that risk's value.

If rates are not regularly updated, they can become outdated, leading to inadequate pricing that doesn't reflect the actual risk profile. This could result in increased losses for the insurer if the rates are too low or deterred business if rates are significantly higher than necessary. Thus, the necessity for frequent review and adjustment is a notable drawback of using specific rates, as it demands ongoing administrative effort and resources.