What is the goal of rate-making in insurance?

The primary goal of rate-making in insurance is to establish rates that will adequately cover future losses. This process involves analyzing various factors, including historical claims data, anticipated future claims, and expenses relating to underwriting and operating the insurance policies. By determining rates that reflect the true cost of risk, insurance companies aim to ensure they can meet their obligations to policyholders while remaining financially solvent.

Establishing rates is essential for maintaining the insurer's financial stability and ensuring that they are able to pay out claims when they arise. This thoughtful calculation helps to balance the premiums collected with the expected payout for claims over time, making it a fundamental aspect of the insurance business.

The other choices, while potentially relevant to broader operational goals, do not capture the specific and critical intent of rate-making itself. For instance, minimizing company expenses might be a secondary benefit of effective rate-making but does not represent its main objective. Similarly, enhancing policyholder engagement and compliance with legal requirements are worthy goals in the insurance industry but are not the direct goal of rate-making.