Which practice involves charging higher premiums to higher-risk individuals?

The practice of charging higher premiums to higher-risk individuals is known as higher rates. This approach is based on the principle of risk assessment, where insurers evaluate the likelihood of a claim being made based on the specific characteristics of the individual seeking coverage. By charging higher rates to those deemed higher risk, insurers aim to offset the potential for greater losses associated with that risk.

For example, in the context of title insurance, if an individual has a history of property disputes or financial instability, they may be categorized as higher risk. Consequently, the title insurance provider will set a premium rate that reflects this increased risk, ensuring that the overall pricing of insurance remains sustainable while adequately protecting against potential claims.

The other options do not fit the definition of charging varying premiums based on risk factors. Risk pooling refers to the practice of grouping multiple individuals together to spread risk across a larger group, which generally helps equalize premium rates rather than increase them for high-risk individuals. Transferring typically involves shifting risk away from one party to another. Reduction might imply lowering premiums or claims, which does not relate to the concept of adjusting rates based on risk.