Which process must be completed before establishing class ratings?

Risk selection is the correct process that must be completed before establishing class ratings. This step involves evaluating and categorizing potential insureds based on their risk profiles. By assessing the risk factors associated with different types of customers or entities, insurers can determine how likely they are to experience a loss or file a claim. This evaluation is crucial as it allows the insurer to classify risks appropriately and set premiums and class ratings that reflect the level of risk being assumed.

The class ratings themselves are derived from this preliminary risk selection process, as they help insurers group similar risks together for underwriting and pricing purposes. Effectively, risk selection ensures that each risk is accurately understood and classified, enabling the insurer to maintain financial stability while offering competitive rates.

Other processes like claims management, market research, and policy review serve important roles within the insurance framework, but they occur after risk selection. Claims management focuses on handling claims after they have been reported, market research helps assess industry trends and customer needs, and policy review examines the terms of existing policies to ensure compliance and adequacy. However, establishing class ratings requires an initial understanding of the risks being insured, which is why risk selection is foundational.