Retrospectively rated insurance is a type of
insurance
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
that uses
retrospective
A retrospective (from Latin ''retrospectare'', "look back"), generally, is a look back at events that took place, or works that were produced, in the past. As a noun, ''retrospective'' has specific meanings in medicine, software development, popu ...
rating: a method of establishing a premium on large commercial accounts. The final premium is based on the insured's actual loss experience during the policy term, sometimes subject to a minimum and maximum premium, with the final premium determined by a formula.
Under this plan, the current year's premium is based partially (or wholly) on the current year's losses, although the premium adjustments may take months or years beyond the current year's expiration date. The rating formula is guaranteed in the insurance contract.
Formula
In science, a formula is a concise way of expressing information symbolically, as in a mathematical formula or a ''chemical formula''. The informal use of the term ''formula'' in science refers to the general construct of a relationship betwee ...
: ''retrospective premium = (converted loss + basic premium) ×
tax
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
multiplier.'' Numerous variations of this formula have been developed and are in use.
In Washington state, retrospective rating is used by the Department of Labor & Industries to create an incentive for improving workplace safety and lowering the cost of workers' compensation claims.
References
External links
Dictionary of Insurance Terms - Retrospective PremiumTexas insurance
Types of insurance
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