What is the definition of Retrospective Rating?
Retrospective Rating refers to the method where insurance premiums are adjusted at the end of the policy year. There is an agreement (with set minimum and maximum premium limits) that premiums will be adjusted based on the actual loss experience of the account or policy. That means if there are a lot of claims, premiums will be adjusted to reflect that.
This is attractive for some clients, as they will stand to have premium savings if there were no claims for that year. The "extra" premiums will be refunded to the client. However, retrospective rating is only sold to large commercial buyers.
The coverage for this policy lasts for 12 months. When the end of the year is nearly up, the insurance company calculated for the retrospective premium. Claims that are considered would be claims within the coverage period.
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