Product Update

Retrospective Rating Plans Discussion Revised in Risk Financing


This release of Risk Financing revises the "Retrospective Rating Plans" discussion.

Retrospective rating is an optional insurance rating program based on a specific formula for factoring an insured's loss experience into the final premium. Like other loss-sensitive rating plans, they provide a high degree of incentive to emphasize loss control efforts. At one time, retrospective rating was frequently utilized for general liability, automobile, and workers compensation insurance. It was a good option for insureds to receive the cost benefits from good loss experience (or to incur a penalty from poor experience) much more quickly than insurance plans based on experience rating alone.

Although they are still in use, over the past 15 to 20 years, retrospective rating plans have become far less common. Due to accounting treatment, financial security, and other concerns, they have been largely replaced in the market by other types of loss sensitive rating, such as large deductible plans.

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