What is Classification?
Classification is the systematic arrangement of objects, information, or entities into groups based on shared characteristics, types, or qualities. In the context of personal and business insurance, classification is essential for determining risk levels and assigning insurance premiums.
For example, in car insurance, vehicles are classified based on factors such as make, model, and year, which influence the cost of insurance coverage. Similarly, in homeowners insurance, properties are classified based on factors such as location, construction type, and usage to assess risk.
Insurance companies use classification to accurately assess the likelihood of claims and set appropriate premiums. This process helps ensure that high-risk individuals or properties pay higher premiums to reflect their increased risk, while lower-risk clients benefit from more affordable coverage.