1. An apparatus to create territory factors for use in pricing insurance policies, comprising: a communication device to receive historical loss data, zip code data and demographic data; a processor coupled to the communication device; and a storage device in communication with said processor and storing instructions adapted to be executed by said processor to: analyze said historical loss data, zip code data, and demographic data to identify one or more significant geographical variables and risk characteristic data; adjust said historical loss data to remove effects of said significant geographical variables and said risk characteristic data; smooth said adjusted historical loss data using a smoothing algorithm; combine said smoothed data with said significant geographical variables and said risk characteristic data; iteratively cluster said combined data by analyzing multiple scenarios, each scenario having a different increment value indicative of a number of reductions applied to most similar neighboring clusters and producing an interim result, the interim result obtained through the reduction of most similar neighboring clusters in accordance with the different increment value; comparing each of said interim results each involving a different grouping of zip codes to select one of said interim results for use, the selected one of said interim results having zip code groups with similar risk exposure data to increase accuracy of ratings within geographical regions corresponding to each zip code group; and assign a territory factor to each of said zip code groups, each of said territory factors to rate and to price insurance policies for entities located in said zip codes.