[Underwriting and Rating: Setting Insurance Rates]Which statement reflects the concept that the premium for each...

One of the fundamental principles of insurance rating is that thepremium charged must accurately reflect the level of riskbeing insured. This principle ensures fairness and financial stability: individuals or businesses presenting a higher probability of loss or greater potential severity must payhigher premiums, while lower-risk policyholders pay less. This is essential because insurers must collect sufficient funds to cover expected claims, expenses, and maintain solvency.

Option B describes the pooling of funds, which is part of how insurance works but does not address how premiums are determined.

Option C relates to the general purpose of insurance, not premium adequacy.

Option D loosely refers to indemnification, not rating methodology.

Therefore, the only statement that accurately reflects the idea that premiums must be commensurate with the risk isA.