Which statement regarding loss history and premiums is true?

A poor loss history generally leads to higher premiums because insurance companies assess the risk associated with insuring an individual or entity based on past claims. When an insured party has frequently filed claims or significant loss events, insurers view this as an indication of higher risk. Consequently, to compensate for this elevated risk, insurers often increase premiums to safeguard their financial stability and manage potential payouts.

In contrast, a good loss history—characterized by infrequent or insignificant claims—typically does not result in increased premiums; instead, it may lead to lower premiums or discounts, as the insurer recognizes a lower likelihood of future claims. Frequent claims do not usually lead to reduced premiums; rather, they reinforce the idea of higher risk. Lastly, loss history is a critical factor in premium calculation and is used widely across the insurance industry to gauge the likelihood of future claims, making the assertion that it has no bearing on premiums inaccurate.