Which of the following statements regarding premiums is true?

Premiums are adjusted based on risk assessments and claims history because insurance companies use these factors to determine the likelihood of a policyholder filing a claim. When assessing risk, insurers evaluate various criteria such as the insured's past behavior, the frequency and severity of claims in similar situations, and other relevant data. This continuous assessment allows insurers to accommodate changes that may affect their exposure to risk, which in turn influences premium rates.

For instance, if a policyholder has a history of making frequent claims, the insurer might increase their premium to offset the higher risk of future claims. Conversely, a history of safe behavior without claims may lead to lower premiums. This dynamic nature of premiums is essential as it ensures that the rates reflect the current risk profile of the insured, promoting fairness in the insurance process.