Retrospective Rating Requires Great Work Comp Risk Management
Retrospective rating is an individual risk rating plan that is an optional plan. Both the employer and the insurance carrier must agree to the Retrospective Rating Plan. This type of rating plan may be applied on either an interstate or intrastate basis. The Experience Rating Plan is applicable to retrospective rated policies. Premium discount is not applicable to retrospectively rated policies.
The object of this type of plan is to adjust the premium for the insurance to which it applies on the basis of losses incurred during the period covered by that insurance. The intent is to charge a premium which reflects those losses. Within the principle of insurance, retrospective rating establishes the reasonable cost of insurance by using losses incurred during the term of that insurance and adding the insurance carrier’s expenses and the taxes on premiums.
The Plan provides an incentive to the insured to control and reduce losses because the retrospective premium will be the result of losses during the rating period. To the extent that the insured controls losses, there is a reward through lower premiums.
However, loss increases can cause the premiums paid to accelerate more than the regular voluntary market policies. These plans should be reviewed very heavily and not just signed off on as with regular policies.