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Loss Sensitive Plans

Loss Sensitive Plans

Definition

An insurance rating plan for which the final premium is dependent on the actual losses during the period the plan is in effect. This risk financing technique places upper limits on the insured's costs if its losses are high but also requires the payment of a minimum premium in the event it experiences low losses or is loss-free. Thus, the risk financing costs tend to vary based on actual loss experience. This type of plan provides an incentive for insureds to emphasize safety and loss control activities. Deductible plans, retrospective rating plans, dividend plans, and retention plans are all examples of loss sensitive plans.

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